Strategy India Strategy

BSE Sensex: 38,220 S&P CNX: 11,312 Refer to our Jun’20 1QFY21 Results Review: Beats muted expectations Quarter Preview Earnings breadth positive; Nifty EPS revised up marginally  The June-quarter (1QFY21) corporate earnings for our coverage universe were better than our muted expectations. Sales were impacted by the COVID-led lockdowns; however, Corporate India undertook stringent cost control measures to protect their bottom line and arrested the decline in operating profit. Healthcare, Utilities, Private Banks and Technology sectors reported YoY profit growth, while Autos, Retail, Metals and Telecom posted losses. Overall, management commentaries indicated MoM improvement in demand during the quarter after easing of the lockdown restrictions.  Nifty sales declined 29% YoY (v/s est. -30%), while EBITDA/PBT/PAT declined 6%/30%/26% YoY (v/s est. decline of 11%/39%/35%). While >50% of Nifty-50 companies reported a beat on our PAT estimates, results of some key index heavyweights like Reliance, TCS and ITC were below expectations.  MOFSL Universe’s sales/EBITDA/PBT/PAT declined 30%/10%/36%/35% YoY (v/s est. decline of 31%/16%/45%/43% YoY). Six sectors posted YoY profit growth – Healthcare (27%), Utilities (16%), PSU Banks (10%), Life Insurance (4%), Private Banks (1%) and Motilal Oswal values your support in Technology (1%). Automobiles, Metals, Retail and Telecom posted losses in line with the Asiamoney Brokers Poll 2020 for expectations. Capital Goods, Cement, Consumer, Oil & Gas (O&G) and NBFCs posted India Research, Sales and Trading YoY PAT declines of 86%, 38%, 20%, 11%, 10% (v/s est. YoY declines of 86%, 67%, 29%, team. We request your ballot. 10%, 19%).  Out of the 18 sectors that we track, 9/8/1 sectors delivered PAT above/in-line/below our estimates.  Sectoral Highlights – Healthcare and Technology stood out: MOSL Healthcare universe had a spectacular run this quarter with PBT/PAT growth of 29%/27% YoY (v/s est. decline of 6%/5% YoY). Three aspects drove the outperformance: (a) Strong revenue and better operating leverage by API companies, (b) Sharp margin improvement due to cost savings in the domestic formulation (DF) segment, offset by (c) High base of the past year and company specific reasons impacting performance of the US segment. Our Technology Universe posted in-line PAT growth of 1% YoY, despite a miss by TCS. Commentary remains stable, while deal wins and deal pipeline are encouraging for most IT companies. 11 out of 13 companies under our coverage have seen upgrades in FY21 PAT estimates.  Private Banks’ performance was in line with expectations – PBT declined 13% YoY while PAT was flattish YoY. All banks reported declines in the moratorium book. Our NBFC Universe’s performance was above expectations as PAT declined 10% YoY (v/s est. -19% YoY). Consumer Universe posted 20% YoY PAT decline (v/s est. -29% YoY) as Britannia, Marico, HUL, Pidilite and Asian Paints beat expectations, driven by their focus on cost rationalization (ad spend reduction and benign input cost). Results of our Cement Universe were above expectations (38% YoY decline in profits v/s est. 67% YoY decline). Despite the 30% YoY volume decline, EBIDA margins remained flat YoY led by sharp cost cuts and benign fuel prices. Out of 10 companies, 9 reported PAT above expectations. Capital Goods universe posted a muted, but in-line performance with PAT decline of 86% YoY.  Automobiles Universe posted PBT/PAT losses of INR79b/INR95b, dragged by lower volumes and consequent lack of operating leverage. Tractor segment outperformed. Out of 17 companies under our coverage, 9 posted losses. Metals Universe posted a loss of INR30b (v/s est. INR23b loss). O&G Universe’s PAT declined 11% YoY (v/s est. 10% YoY decline). Utilities posted 16% YoY profit growth (v/s est. decline of 21%), largely led by NTPC and Power Grid.

Gautam Duggad – Research Analyst ([email protected])

August 2020Investors are advised to refer through important disclosures made at the last page of the Research Report. 1 Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital. Strategy

 MOFSL Universe – 63% companies reported YoY PAT declines while 16% posted YoY profit growth >30%.  Our FY21/FY22E Nifty EPS estimates have been marginally revised upwards by 2.1%/2.7% to INR477/INR664 (prior: INR467/INR647). We now expect FY21 Nifty EPS to grow 2.4% YoY.  Breadth of earnings revision was positive – 84 companies in the MOFSL Universe saw upgrades of >5% while 40 witnessed downgrades of >5% for FY21.  MOFSL Universe at sectoral level – Metals/Healthcare/Cement/Utilities/NBFCs /Technology/Consumer have seen earnings upgrades for FY21 of 21%/12%/11%/8%/8%/6%/2% YoY.  Top upgrades (FY21E): Hindalco (49%), Asian Paints (41%), UltraTech (21%), Cipla (19%), Tech Mahindra (17%), Britannia (16%), HCL Tech (14%), and Infosys (11%)  Top downgrades (FY21E): Grasim (-10.3%), Kotak (-9.7%), Titan (-9.2%), Gail (-8%), RIL (-8%), and ITC (-5%).  The 1QFY21 corporate earnings came in above our muted expectations. Cost control and cash preservation were effectively deployed as tools to offset the headwinds from the lockdown induced volume declines. Just 6% EBITDA decline in the Nifty (despite 30% revenue decline) is a testament to the ability of India Inc. to drive cost control when needed. Healthcare and Technology earnings stood out – both in absolute and relative terms – and we expect these sectors to show continued strength ahead. Rural India outperforming urban clusters is a consensus commentary from all sectors. As the lockdowns are eased and demand recovery takes shape gradually, we expect the commentaries to improve. However, after the 50% rally from Mar’20 lows, we believe some of this recovery is priced in. At 20.5x 1-year forward P/E, the Nifty is now trading at a premium to its LPA and is not offering a lucrative risk-reward proposition, in our view. Further upside hereon, in our opinion, hinges on demand/earnings normalization and abatement of the spread of COVID-19 pandemic.

Exhibit 1: Preferred Large-cap ideas MCap CMP EPS (INR) EPS CAGR (%) PE (x) PB (x) ROE (%) Company (USD b) (INR) FY20 FY21E FY22E FY20-22 FY20 FY21E FY22E FY20 FY21E FY22E FY20 FY21E FY22E Reliance Inds. 180.2 2,096 67.9 67.4 111.4 28 30.9 31.1 18.8 2.9 2.7 2.4 10.2 9.0 13.5 Hind. Unilever 68.6 2,187 31.2 34.3 44.2 19 70.1 63.7 49.5 58.8 10.4 10.4 86.0 28.2 21.0 Infosys 58.5 955 38.9 41.6 48.2 11 25 23 19.8 6.6 5.8 5.0 25.2 25.2 25.4 Bharti Airtel 39.0 526 -7.5 10.2 5.4 NM NM 51.4 97.4 3.7 4.3 4.1 -5.5 7.7 4.3 St Bk of India 23.4 195 22.1 23.7 32.5 21 8.8 8.2 6.0 0.7 0.7 0.6 7.2 7.1 9.6 Titan Company 13.6 1,127 17.1 10.3 22.1 14 66.0 109.4 51.1 15.0 14.5 12.7 23.8 13.5 26.6 Dabur India 11.6 493 8.6 9.0 10.6 11 57.1 54.7 46.5 13.2 12.4 11.5 24.9 23.4 25.6 Divi's Lab. 11.2 3,189 48.9 69.7 86.3 33 65.2 45.8 37.0 11.6 9.1 7.6 18.2 22.2 22.4 M & M 10.1 612 15.0 27.0 36.4 56 40.9 22.7 16.8 2.1 2.0 1.8 9.7 9.0 10.4

ICICI Pru Life 8.7 439 7.4 8.0 8.6 8 59.0 54.8 50.8 2.7 2.4 2.1 6.5 14.5 14.6

Exhibit 2: Preferred Mid-cap ideas MCap CMP EPS (INR) EPS CAGR (%) PE (x) PB (x) ROE (%) Company (USDb) (INR) FY20 FY21E FY22E FY20-22 FY20 FY21E FY22E FY20 FY21E FY22E FY20 FY21E FY22E Tata Consumer 6.7 549 8.0 10.1 12.1 23 69 54.2 45.5 3.7 3.5 3.3 6.9 6.6 7.5 Motherson Sumi 5.3 119 3.7 1.2 5.6 23 32 102.4 21.2 3.3 3.3 3.0 10.5 3.2 14.6 Alkem Lab 4.5 2,856 95.4 131.5 146.1 24 30 21.7 19.6 5.5 4.6 3.9 19.7 23.2 21.6 Ipca Labs. 3.4 2,032 51.4 89.0 88.7 31 40 22.8 22.9 7.1 5.6 4.6 19.2 27.3 22.1 AU Small Finance 3.0 726 22.6 20.7 28.9 13 32 35.1 25.1 5.1 4.5 3.8 18.0 13.5 16.3 Gujarat Gas 2.8 313 17.3 11.4 16.4 -3 18 27.6 19.1 6.6 5.5 4.5 43.6 21.7 25.9 Crompton Gr. Con 2.2 264 7.0 6.7 8.8 13 38 39.3 29.8 11.3 9.7 8.1 29.8 24.6 27.3 ICICI Securities 2.0 460 16.8 24.0 26.4 25 27.3 19.1 17.4 12.3 10.3 8.7 48.1 58.4 54.3 Aditya Birla Fashion 1.4 143 -0.2 -3.0 -0.6 88 NM NM NM 10.2 15.7 16.7 -1.1 -36.6 -7.9

Indiamart Inter. 1.1 3,053 51.3 79.3 87.3 30 60 38.5 35.0 20.3 11.9 8.2 72.2 61.4 43.7 LP: Loss to Profit

August 2020 2 Strategy

1QFY21 performance above expectations on cost-cut Sales in line for MOFSL/Nifty; EBITDA/ PBT/PAT above expectation  For the MOFSL Universe, aggregate sales declined 30.4% YoY (v/s est. -31.4%), EBITDA declined 10.4% YoY (v/s est. -16.5%), PBT was down 36.4% YoY (v/s est. - 45.4%) and PAT declined 34.5% YoY (v/s est. -37%). 1QFY21 results were above our muted expectations largely led by significant cost rationalisation across sectors.  At PBT level, Healthcare (29.2%), Life Insurance (5.3%) and Technology (2.7%) managed to post gains YoY. On the other hand, Capital Goods (-76.6%), Media (- 67%), Cement (-40.3%), O&G (-28.7%), Consumer (-26.2%), NBFCs (-21.5%), PSU Banks (-15.9%), Utilities (-12.8%) and Private Banks (-12.6%) posted double-digit PBT declines YoY. Capital Goods, Cement, Consumer, Life Insurance, NBFCs, Healthcare, Infrastructure and Utilities have beaten our PBT expectations.  Aggregate performance decline was largely led by Automobiles, Metals and Capital Goods, which contributed 69% of the incremental decline.  EBITDA margin for the MOFSL Universe (excluding Financials) stood at 17.6% (v/s est. 16.4%). Margin expansion in Healthcare, Utilities, Telecom and Cement drive 270bp YoY margin expansion. Autos, Capital Goods and Consumer sectors saw margin contraction YoY and were better/in line with est.

Exhibit 3: Earnings above muted expectations; Healthcare & Technology stood out Sector Sales EBIDTA PBT PAT Var. Var. Var. Var. Chg. % Chg. Chg. % Chg. Chg. % Chg. Chg. % Chg. % Jun-20 over Jun-20 over Jun-20 over Jun-20 over QoQ % YoY QoQ % YoY QoQ % YoY QoQ YoY (no of companies) Exp. (%) Exp. (%) Exp. (%) Exp. (%) Automobiles (17) 668 -52.5 -56.9 14.7 2 -98.1 -98.5 LP -79 PL PL Loss -95 Loss PL Loss Capital Goods (11) 310 -51.8 -36.0 -0.5 21 -72.9 -61.3 2.4 11 -83.7 -76.6 12.2 4 -92.1 -85.8 4.6 Cement (10) 225 -30.5 -35.5 -1.1 52 -20.7 -35.4 18.7 31 -17.9 -40.3 85.4 22 -30.0 -37.9 89.2 Consumer (15) 422 -7.4 -15.4 7.0 95 -12.7 -26.3 6.4 92 -12.5 -26.2 9.2 68 -17.9 -19.5 13.1 Financials (26) 1,034 -4.9 10.6 5.1 740 1.9 21.2 5.2 290 35.2 -14.8 0.0 227 24.4 -0.3 2.1 Banks-Private (11) 443 3.2 18.3 3.7 390 9.1 23.2 2.1 177 43.2 -12.6 -4.8 136 42.7 1.5 -2.9 Banks-PSU (2) 335 13.2 13.7 7.8 224 -5.1 27.7 7.1 43 31.0 -15.9 2.0 33 -18.7 10.0 6.7 Life Insurance (2) 113 -46.2 -11.0 6.7 9 -14.9 10.6 73.3 8 67.1 5.3 30.3 7 50.4 4.1 33.1 NBFC (11) 144 -5.9 2.9 2.1 117 -4.2 5.7 9.2 63 16.6 -21.5 11.6 51 21.9 -10.5 10.5 Healthcare (18) 458 -0.7 6.6 1.0 112 25.0 22.9 24.7 88 39.8 29.2 38.1 66 32.3 26.6 32.7 Infrastructure (2) 11 -45.5 -21.6 33.9 2 -53.1 -11.7 110.1 1 -50.4 -4.0 17,240 1 -53.0 -3.1 16,900 Media (2) 19 -28.6 -38.3 14.5 6 189.7 -52.6 501.5 4 LP -67.0 1,877.2 4 LP -49.6 2,748.6 Metals (5) 751 -20.7 -25.8 5.9 83 -46.6 -52.0 -2.7 -17 PL PL Loss -30 PL PL Loss Oil & Gas (12) 2,515 -42.4 -47.5 -1.3 325 13.5 -13.2 -7.2 183 72.0 -28.7 -13.3 158 -18.7 -11.1 -1.4 Ex OMCs (9) 1,126 -38.4 -43.7 -22.9 187 -25.4 -27.1 -22.8 90 -41.3 -49.0 -42.6 90 -30.4 -26.8 -25.6 Retail (6) 64 -55.9 -57.5 -5.9 -7 PL PL Loss -12 PL PL Loss -9 PL PL Loss Technology (13) 1,167 -2.9 4.7 -0.3 275 -2.4 11.2 4.9 254 -2.1 2.7 2.4 190 -6.2 1.2 1.2 Telecom (4) 425 -2.3 6.6 1.4 173 1.2 18.2 6.4 -39 Loss Loss Loss -50 Loss Loss Loss Utilities (5) 446 -13.0 -5.8 -5.3 200 -5.9 7.1 17.4 69 -30.5 -12.8 30.4 67 -1.9 15.8 46.9 Others (21) 263 -34.2 -30.3 -9.2 26 -53.1 -66.9 -24.2 -9 PL PL PL -14 PL PL Loss MOFSL Universe (167) 8,776 -29.4 -30.4 1.4 2,104 -10.8 -10.4 7.3 868 -13.4 -36.4 16.4 609 -29.3 -34.5 14.9 Nifty (47) 6,585 -28.6 -29.4 1.0 1,773 -9.6 -5.6 6.4 775 -12.8 -29.6 15.0 549 -26.0 -25.5 13.7 4,220 -21.2 -20.5 -5.4 1,518 -10.5 0.0 2.2 699 -18.4 -22.8 0.8 529 -16.2 -14.1 3.5 Sensex (29)

August 2020 3 Strategy

Exhibit 4: MOFSL Universe sales decline 30% YoY Exhibit 5: MOFSL Universe EBIDTA declines 10% YoY

23 25 22 27 14 11 15 15 12 20 19 8 11 7 16 18 18 16 5 4 15 13 15 13 11 7 8 4 5 -1 -2 -1 2 3 -4 -5 -4 -4

-30 -4 -8 -10 Sep-15 Sep-16 Sep-17 Sep-18 Sep-19 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Mar-17 Mar-18 Mar-19 Mar-20 June-15 June-16 June-17 June-18 June-19 June-20 'Mar-16 Sep-15 Sep-16 Sep-17 Sep-18 Sep-19 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Mar-17 Mar-18 Mar-19 Mar-20 June-15 June-16 June-17 June-18 June-19 June-20 'Mar-16

Exhibit 7: EBITDA margin (Excl. Financials) expanded 270bp Exhibit 6: MOFSL Universe PAT was down 35% YoY YoY to 17.6%

22 18.5

15 16 16 15 17.4 17.0

13 16.7 17.6 16.4 16.3

11 16.0 16.0 15.9

10 15.8 10 15.7 15.4 15.2 15.2 8 15.2 14.9 6 14.8

6 14.4 2 2 14.2 0 1 13.1

-3 -7 -4

-21 -35 Sep-15 Sep-16 Sep-17 Sep-18 Sep-19 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Mar-17 Mar-18 Mar-19 Mar-20 Sep-15 Sep-16 Sep-17 Sep-18 Sep-19 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 June-15 June-16 June-17 June-18 June-19 June-20 'Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 June-15 June-16 June-17 June-18 June-19 June-20 'Mar-16

. .

Sector performance: Sales decline for fourth consecutive quarter; Autos, Metals and Capital Goods dragged aggregate PAT  Retail, Autos, O&G, Capital Goods and Metals sales declined 57.5%, 56.9%, 47.5%, 36% and 25.8%YoY, respectively, dragging aggregate sales performance of the MOFSL Universe, which declined 30.4% YoY (fourth successive decline). 12 out of 18 sectors posted YoY sales decline. Private Banks (+18.3%), PSU Banks (+13.7%), Healthcare (+6.6%), Telecom (+6.6%), Technology (+4.7%) and NBFCs (+2.9%) were the major sectors to show reasonable top line growth.  EBITDA decline of 10% YoY was the worst in the past 5 years as the lockdown impacted sales and operating leverage. However, cost rationalization measures implemented by companies across sectors helped in arresting the decline. Utilities, Telecom, Technology, O&G and Healthcare sectors reported YoY increase in margins. PSU Banks (+27.7%), Private Banks (+23.2%), Healthcare (+22.9%), Telecom (+18.2%), Technology (+11.2%), Life Insurance (+10.6%), Utilities (+7.1%) and NBFCs (+5.7%) reported EBITDA growth YoY.  Profit was dragged by sectors like Autos (loss of INR95b), Metals (loss of INR30b), Retail (loss of INR9b), Capital Goods (-85.8%) and Cement (-37.9%) YoY. Healthcare (+26.6%), Utilities (+15.8%), PSU Banks (+10%), Life Insurance (+4.1%), Private Banks (+1.5%) and Technology (+1.2%) managed to post some gains YoY.

August 2020 4 Strategy

Exhibit 8: Key highlights – Operating margins

June-19 (actual) June-20 (actual) 44.9 40.7 39.5 36.7

25.9 24.4 23.6 22.9 22.9 22.5 21.1 22.2 17.1 12.9 9.3 11.2 11.0 6.8 7.8 0.3 Auto Metals Utilities Cement Telecom Oil & Gas Consumer Cap Goods Cap Healthcare Technology

August 2020 5 Strategy

Nifty: 1QFY21 performance highlights Cost cuts help beat profit estimates  Nifty sales declined 29.4% YoY (v/s est. -30%), while EBITDA/PBT/PAT declined 5.6%/29.6%/25.5% YoY (v/s est. -11.2%/-38.8%/-34.5% YoY).  Nifty EBITDA declined 5.6% YoY – the worst decline since Jun’17.  Nifty PAT declined 25.5% YoY, dragged by Autos, Telecom, Metals and certain heavyweights like TCS, Reliance Industries and ITC.  Britannia, HCL Tech, Dr. Reddy’s, Cipla, BPCL, SBI, ICICI Bank, NTPC & Power Grid posted 20%+ YoY PAT growth.  EBITDA of 27 Nifty-50 companies and PAT of 26 Nifty-50 companies were above expectations. Only 8/9 companies reported EBITDA/PAT below expectations.  24 out of the 47 Nifty-50 companies that reported 1QFY21 results so far saw earnings upgrades of >5% for FY21 EPS, while 9 companies saw downgrades of >5%.

Exhibit 10: Nifty EBITDA decline of 5.6% YoY – worst since Exhibit 9: Nifty sales decline YoY for 4th consecutive quarter Jun’17 25 23 23 28 15 15 12 14 11 22 8 11 5 7 19 18 3 16 16 18 16 18 17 13 10 8 -1 -2 -1 6 -4 4 4 5 -7 -8 -6 3

-29 -2 -7 -6 Sep-15 Sep-16 Sep-15 Sep-16 Sep-17 Sep-17 Sep-18 Sep-18 Sep-19 Sep-19 Dec-15 Dec-16 Dec-15 Dec-16 Dec-17 Dec-17 Dec-18 Dec-18 Dec-19 Dec-19 Mar-17 Mar-17 Mar-18 Mar-18 Mar-19 Mar-19 Mar-20 Mar-20 June-15 June-16 June-15 June-16 June-17 June-17 June-18 June-18 June-19 June-19 June-20 June-20 'Mar-16 'Mar-16

Exhibit 11: Nifty PAT declines 25% YoY vs. est. of 35% YoY Exhibit 12: Nifty EBIDTA margin (excl. Financials) expanded decline by 330bp YoY (%) 24 17 14 14 16 19.1 17.6 17.4 17.3 18.3 16.8 16.7 16.6 16.6 16.2 15.8 9 15.8 15.7 15.7 15.7 15.6 15.2 7 15.1 6 7 7 6 5 6 15.0

5 14.3 1 2 3 13.6

0 -6 -16 -25 Sep-15 Sep-15 Sep-16 Sep-17 Sep-18 Sep-19 Sep-16 Sep-17 Sep-18 Sep-19 Dec-15 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-16 Dec-17 Dec-18 Dec-19 Mar-17 Mar-18 Mar-19 Mar-20 Mar-17 Mar-18 Mar-19 Mar-20 June-15 June-15 June-16 June-17 June-18 June-19 June-20 June-16 June-17 June-18 June-19 June-20 'Mar-16 'Mar-16

August 2020 6 Strategy

Exhibit 13: 26 Nifty-50 companies posted YoY PAT decline Sales EBITDA PBT PAT Var. Var. Var. Var. Jun Chg. % Chg. % over Jun Chg. % Chg. % over Jun Chg. % Chg. % over Jun Chg. % Chg. % over 2020 YoY QoQ Exp. 2020 YoY QoQ Exp. 2020 YoY QoQ Exp. 2020 YoY QoQ Exp. Company (%) (%) (%) (%) High PAT growth Britannia 34 26.7 19.3 3.8 7 81.7 57.8 29.8 7 81.0 61.1 33.0 5 105.4 45.7 30.8 BPCL 388 -49.2 -43.8 19.7 40 84.9 570.7 57.8 29 116.5 LP 124.7 21 93.1 LP 139.0 State Bank 266 16.1 17.0 9.4 181 36.3 -2.2 12.8 56 36.8 11.9 61.1 42 81.2 17.0 62.3 Bajaj Finserv 142 15.7 6.8 0.4 142 15.6 6.8 0.4 26 14.0 224.6 35.7 12 43.7 525.0 58.8 ICICI Bank 93 19.9 4.0 6.4 108 71.4 45.8 9.4 32 14.0 123.7 -9.1 26 36.2 112.8 -2.3 HCL Technologies 178 8.5 -4.1 -0.2 46 34.1 -3.3 11.1 39 31.6 0.0 15.0 29 31.5 -7.3 10.5 Dr Reddy’ s Labs 44 14.9 -0.3 -0.6 11 53.1 18.3 15.4 9 54.2 64.6 29.1 6 30.4 1.4 6.4 NTPC 243 -1.8 -16.6 -3.2 85 22.8 -6.8 38.9 33 -12.0 -33.4 66.8 33 22.7 0.7 66.8 Power Grid Corp. 94 6.6 -12.1 12.3 83 4.8 -8.6 9.0 28 -13.4 -35.8 6.0 28 21.4 -5.7 40.4 Cipla 43 9.0 -0.7 4.1 10 15.9 65.6 47.8 8 20.6 121.9 85.1 6 20.9 110.4 82.4 HDFC Bank 157 17.8 3.0 1.8 128 15.1 -1.0 -2.6 89 4.7 -2.6 -0.8 67 19.6 -3.9 -0.3 Med/Low PAT growth HDFC 33 9.7 -5.9 2.6 32 5.0 -10.1 5.5 29 6.4 2.4 7.1 25 17.2 12.8 6.2 Infosys 237 8.5 1.7 2.3 61 18.8 7.8 10.1 58 12.1 5.4 10.5 42 11.5 -2.0 9.9 Nestle 31 1.7 -8.3 -5.0 8 5.0 -5.3 -0.8 7 -0.9 -6.7 -2.9 5 11.1 -6.6 -2.6 UPL 78 -0.9 -29.7 -9.3 18 7.3 -18.0 -3.7 9 6.4 -21.2 11.5 6 10.4 -19.9 -5.6 Hind. Unilever 106 4.4 17.2 5.4 26 -0.1 28.0 11.4 25 -1.1 23.4 9.0 19 7.0 27.5 9.1 HDFC Life Insur. 57 -11.3 -45.3 4.3 3 -33.1 85.0 -19.2 5 3.3 58.6 26.8 5 6.2 44.7 35.2 Shree Cement 23 -23.4 -27.7 -2.9 7 -22.3 -35.1 0.8 5 0.1 -27.7 57.4 4 2.1 -37.0 56.9 Tech Mahindra 91 5.2 -4.0 1.1 13 -1.0 -3.5 9.4 13 -0.4 8.6 28.8 10 1.4 20.9 31.9 Wipro 150 1.6 -4.9 -0.4 33 11.4 2.5 15.0 31 0.8 4.4 13.1 24 0.4 2.8 11.4 Negative PAT Growth Kotak Mahindra Bank 37 17.4 4.6 -0.8 26 9.4 -3.7 -3.4 17 -20.2 -1.0 -5.6 12 -8.5 -1.7 -5.6 Sun Pharma 75 -9.6 -7.6 -9.1 16 -9.2 17.7 6.6 14 -13.3 39.8 17.8 11 -13.2 55.2 23.3 TCS 383 0.4 -4.1 -2.5 100 -0.1 -8.7 -4.2 95 -10.7 -9.6 -9.3 70 -13.5 -12.9 -12.6 Reliance Inds. 883 -43.8 -35.3 -26.0 169 -20.8 -23.4 -18.7 82 -42.7 -39.2 -38.3 84 -17.4 -12.5 -16.1 Axis Bank 70 19.5 2.6 7.2 58 -0.8 -0.1 -2.9 14 -31.3 LP -3.7 11 -18.8 LP 0.3 Bajaj Finance 33 10.3 -12.2 -1.6 30 24.7 -7.3 11.5 13 -29.3 2.5 10.4 10 -19.5 1.5 8.2 Bharti Infratel 35 -5.6 -3.3 6.0 18 -6.8 4.0 21.7 9 -14.7 8.9 1.6 7 -20.7 8.3 1.3 ITC 89 -21.2 -17.8 6.9 26 -42.0 -36.4 -19.4 31 -35.0 -30.7 -9.7 23 -26.2 -38.3 -6.1 Ultratech Cement 76 -33.2 -29.0 0.0 21 -29.7 -15.0 18.8 13 -30.6 -10.0 71.5 9 -29.3 -31.7 73.8 Hindalco 258 -15.3 -13.2 16.2 26 -26.0 -29.7 -7.6 3 -76.3 -79.4 -5.0 5 -40.9 -58.5 99.3 IOC 624 -52.6 -47.3 33.2 55 -33.3 88.0 65.3 26 -51.1 LP LP 19 -46.9 -68.8 LP Bajaj Auto 31 -60.3 -54.8 6.5 4 -65.9 -67.4 78.6 7 -56.8 -60.4 20.4 5 -53.1 -59.7 20.7 IndusInd Bank 33 16.4 2.4 4.4 29 13.0 2.5 5.7 7 -69.0 60.6 -32.8 5 -64.4 61.9 -31.5 Asian Paints 29 -42.7 -37.0 63.6 5 -58.2 -43.7 166.2 3 -68.4 -54.0 902.5 2 -67.4 -54.3 1,482.3 Zee Entertainment 13 -34.7 -32.8 19.9 2 -66.7 LP LP 1 -92.2 LP LP 1 -69.2 LP LP GAIL 121 -34.0 -31.9 -8.5 6 -72.4 -74.8 -67.2 4 -82.0 -86.1 -78.5 3 -80.2 -93.3 -83.7 Hero Motocorp 30 -63.0 -52.4 8.0 1 -90.7 -83.6 LP 1 -92.7 -87.8 LP 1 -90.3 -90.1 LP Larsen & Toubro 213 -28.3 -51.9 2.5 16 -51.2 -68.4 -11.8 7 -74.8 -84.2 -20.0 1 -94.8 -97.7 -74.6 Mahindra & Mahindra 56 -56.4 -37.9 -2.0 6 -68.0 -53.3 35.7 0 -96.4 -94.5 LP 0 -95.8 -87.9 LP Titan Company 20 -61.6 -58.0 -5.3 -3 PL PL Loss -4 PL PL Loss -3 PL PL Loss Maruti Suzuki 41 -79.2 -77.4 13.8 -9 PL PL Loss -3 PL PL Loss -2 PL PL Loss JSW Steel 118 -40.5 -34.1 -4.0 13 -63.9 -54.9 3.4 -6 PL PL Loss -6 PL PL Loss Tata Steel 243 -32.4 -28.1 1.0 5 -90.6 -89.1 -51.1 -34 PL PL Loss -44 PL PL Loss Eicher Motors 8 -66.0 -63.4 3.3 0 -99.4 -99.1 LP 0 -97.7 -96.8 LP -1 PL PL Loss Grasim Industries 19 -61.1 -54.9 -6.7 -1 PL PL PL -3 PL PL Loss -2 PL PL Loss Bharti Airtel 239 15.4 0.9 2.2 104 25.7 2.4 3.1 4 LP LP LP -4 Loss Loss Loss Tata Motors 320 -48.0 -48.8 25.7 6 -78.8 -73.2 LP -62 Loss Loss Loss -84 Loss Loss Loss

Nifty Universe 6,585 -29.4 -28.6 1.0 1,773 -5.6 -9.6 6.4 775 -29.6 -12.8 15.0 549 -25.5 -26.0 13.7 Note: PL: Profit to Loss; LP: Loss to Profit

August 2020 7 Strategy

Over three-fifth of MOFSL Universe reported YoY profit decline  63% companies from the MOFSL Universe reported YoY profit declines.  Only 16% companies reported profit growth of more than 30%. Exhibit 14: Distribution of PAT growth – Two-thirds of covered companies posted declines Earnings Gr. >30% >15-30% >0-15% <0% Ex OMCs (%) 18 9 20 22 6 -19 22 11 0 8 9 7 -9 -3 -13 1 10 4 9 -21 17 -11 18 -38 26 24 13 4 11 6 -3 12 -7 -4 -4 3 9 8 11 6 2

27 25 24 31 34 38 26 30 23 30 31 37 38 36 35 36 37 35 32 34 32 35 33 34 38 35 35 42 40 39 42 40 45 38 47 39 45 47 38 16 63 10 20 18 18 66 27 20 17 15 24 19 13 27 17 16 19 22 25 17 18 16 22 25 21 24 18 23 22 18 16 17 22 24 25 22 20 21 23 21 23 16 18 20 18 21 15 15 19 19 15 11 24 25 18 22 17 17 19 18 20 26 19 15 18 17 17 16 18 14 20 22 23 16 13 13 15 13 10 12 16 9 38 39 35 35 41 8 32 24 25 25 28 26 24 26 24 26 26 26 29 30 29 25 32 31 26 26 26 32 26 21 21 19 19 20 18 21 22 21 23 19 15 16 % % of MOFSL Univ. companies Sep 10 Sep 11 Sep 12 Sep 13 Sep 14 Sep 15 Sep 16 Sep 17 Sep 18 Sep 19 Dec10 Dec11 Dec12 Dec13 Dec14 Dec15 Dec16 Dec17 Dec18 Dec19 Mar 11 Mar 12 Mar 13 Mar 14 Mar 15 Mar 16 Mar 17 Mar 18 Mar 19 Mar 20 June 10 June 11 June 12 June 13 June 14 June 15 June 16 June 17 June 18 June 19 June 20 PAT Growth Ex OMCs (%)

Exhibit 15: Sector estimates revision from preview PAT (INR B) - % Upgrade / PAT (INR B) - REVIEW Growth YoY (%) PREVIEW Downgrade Sector FY21E FY22E FY21E FY22E FY21E FY22E FY20 FY21E FY22E Automobiles 97 325 96 340 -1.2 4.5 -51 -38 254 Capital Goods 120 169 117 163 -2.4 -3.4 6 -23 39 Cement 114 164 126 172 10.8 5.1 29 -14 37 Consumer 349 428 357 435 2.1 1.5 16 -3 22 Financials 1,137 1,503 1,147 1,545 0.9 2.8 40 12 35 Banks-Private 665 862 658 876 -1.0 1.6 24 19 33 Banks-PSU 221 318 218 322 -1.1 1.2 643 7 47 Life Insurance 24 27 26 28 7.5 4.4 -2 8 11 NBFC 228 296 245 319 7.7 8.0 5 0 30 Healthcare 243 295 273 319 12.5 8.0 13 30 17 Infrastructure 4 6 4 6 10.5 1.9 3 -27 37 Media 18 22 21 31 16.7 38.0 -22 -8 44 Metals 99 237 120 271 21.3 14.5 -57 -11 126 Oil & Gas 832 1,165 820 1,214 -1.4 4.2 -13 13 48 Excl. OMCs 589 832 541 864 -8.1 3.8 6 -1 60 Retail 14 40 12 39 -12.8 -2.1 7 -56 213 Technology 763 883 810 941 6.2 6.6 3 2 16 Telecom -220 -183 -133 -145 -39.7 -21.1 Loss Loss Loss Utilities 269 327 291 322 8.4 -1.6 18 4 11 Others 70 156 22 148 -69.4 -4.7 -1 -79 589 MOFSL Universe 3,910 5,537 4,085 5,802 4.5 4.8 -1 4 42 NIFTY EPS (INR) 467 647 477 664 2.1 2.7 -4 2 39

August 2020 8 Strategy

Marginal increase of 2.1%/2.7% in Nifty FY21/FY22E EPS Nifty EPS expected to stay flattish YoY in FY21  Our Nifty EPS estimate has been marginally increased by 2.1% to INR477 (prior: INR467) for FY21 and by 2.7% to INR664 (prior: INR647) for FY22E.  We expect Nifty EPS to grow 2.4% in FY21. Financials, Telecom, Oil & Gas and Healthcare should contribute to the incremental growth in Nifty profits in FY21. On the other hand, Autos, Capital Goods, Cement, Metals and Utilities sectors are expected to drag. Excl. BFSI, we expect Nifty FY21 profits to remain flat YoY on the back of 13% decline in FY20.  Top upgrades (FY21E): Hindalco (49%), Asian Paints (41%), UltraTech (21%), Cipla (19%), Tech Mahindra (17%), Britannia (16%), HCL Tech (14%),Infosys (11%).  Top downgrades (FY21E): Grasim (-10.3%), Kotak (-9.7%) and Titan (-9.2%), Gail (-8%), RIL (-8%), ITC (-5%)

Exhibit 16: Nifty EPS revision since preview EPS UPGRADE / Company Current EPS (INR) EPS GROWTH (%) DOWNGRADE (%) FY21E FY22E FY21E FY22E FY20 FY21E FY22E Bharti Airtel 10.2 5.4 579.1 -5.5 Loss LP -47.2 Hindalco 17.2 25.1 48.8 37.1 -29.2 -1.5 45.7 Asian Paints 25.5 31.2 41.0 9.8 25.5 -12.1 22.4 Zee Entertainment 9.4 15.1 40.6 84.3 -66.6 71.9 60.7 IOC 14.7 21.4 32.4 10.4 -45.4 43.1 45.8 Ultratech Cement 135.5 195.5 21.5 10.7 62.9 -8.0 44.3 Cipla 28.6 32.6 19.0 14.1 4.8 45.7 13.9 Tech Mahindra 42.6 52.4 17.3 17.2 -5.9 -7.1 22.9 Britannia 81.3 79.7 15.7 3.3 21.8 38.6 -1.9 HCL Technologies 44.4 51.0 14.4 11.8 11.1 9.0 14.8 Maruti Suzuki 152.1 242.0 12.6 4.6 -25.8 -19.1 59.1 Axis Bank 21.8 39.0 12.4 10.1 -66.9 261.6 78.7 Power Grid Corp. 23.1 24.4 12.4 0.7 10.2 9.3 5.4 BPCL 36.3 42.5 12.1 -0.7 -41.6 43.3 16.9 Wipro 17.3 18.7 12.0 5.8 8.5 3.8 8.5 Infosys 41.6 48.2 10.7 12.1 5.1 6.9 15.8 HDFC Life Insur. 6.9 7.9 10.7 3.9 1.3 8.2 14.3 Dr Reddy’ s Labs 165.0 178.2 10.7 7.2 15.4 35.9 8.0 Sun Pharma 19.0 23.3 9.5 2.7 8.7 15.7 23.0 Hero MotoCorp 151.9 176.2 8.7 2.9 -9.7 -0.7 16.0 NTPC 14.3 15.8 7.5 -4.5 19.2 3.9 10.4 Bharti Infratel 16.7 17.7 7.0 5.5 31.1 -6.5 6.3 Eicher Motors 510.1 822.0 5.5 5.8 -17.8 -23.8 61.1 State Bank 23.7 32.5 5.4 6.6 759.6 6.9 37.3 JSW Steel 8.4 22.4 2.5 -11.3 -71.6 -7.0 167.0 HDFC 55.0 60.5 2.2 4.2 10.8 11.8 10.0 Bajaj Auto 168.3 183.2 2.0 2.3 13.3 -10.1 8.8 Hind. Unilever 34.3 44.2 1.6 1.8 11.1 10.0 28.6 HDFC Bank 55.0 65.2 0.6 2.4 21.2 14.4 18.5 Nestle 221.9 254.4 0.6 -2.5 15.8 7.3 14.7 TCS 83.9 99.1 -1.7 1.3 3.7 -2.7 18.2 Shree Cement 408.5 578.7 -2.0 -2.8 34.3 -6.1 41.6 Bajaj Finance 73.9 120.7 -2.4 2.7 26.7 -15.8 63.3

August 2020 9 Strategy

EPS UPGRADE / Company Current EPS (INR) EPS GROWTH (%) DOWNGRADE (%) FY21E FY22E FY21E FY22E FY20 FY21E FY22E Larsen & Toubro 53.1 69.6 -3.1 -5.1 7.1 -21.9 31.2 IndusInd Bank 62.7 84.4 -3.9 -5.6 25.3 -8.8 34.6 ITC 10.6 12.6 -5.3 -0.6 22.2 -14.6 19.2 ICICI Bank 16.1 24.3 -7.4 1.5 135.0 31.0 51.2 UPL 37.2 43.9 -8.1 -5.7 11.2 3.6 18.2 Reliance Inds. 67.4 111.4 -8.2 4.8 8.1 -0.8 65.3 GAIL 11.8 15.3 -8.3 -0.2 17.3 -28.1 29.8 Titan Company 10.3 22.1 -9.2 11.7 8.9 -39.7 114.3 Kotak Mahindra Bank 41.4 51.5 -9.7 -10.5 19.0 -7.9 24.6 Grasim Industries 39.4 66.8 -10.3 -2.7 1.8 -41.5 69.5 Mahindra & Mahindra 27.0 36.4 -15.5 -17.8 -64.9 80.2 35.0 Tata Steel -8.7 58.1 Loss 31.9 -89.8 PL LP Tata Motors -34.4 5.9 Loss PL Loss Loss LP Nifty (50) 477 664 2.1 2.7 -3.7 2.4 39.4

August 2020 10 Strategy

Exhibit 17: Nifty FY20-22E free float PAT CAGR at 21% Sales (INR b) Sales EBIDTA Margin (%) EBITDA PAT (INR b) PAT Contbn to CAGR % CAGR % CAGR % Company FY20 FY21E FY22E FY20 FY21 FY22 FY20 FY21E FY22E Delta % 20-22 20-22 20-22 High PAT Gr. (20%+) 25,697 23,141 27,805 4 17 20 21 16 1,275 1,521 2,332 35 66 Bharti Airtel 875 999 1,123 13 42 45 47 20 -41 56 29 LP 4 Axis Bank 252 285 325 14 93 92 93 14 16 62 110 160 6 Tata Steel 1,398 1,291 1,481 3 12 12 16 17 10 -10 67 153 3 JSW Steel 726 668 884 10 15 17 20 26 22 20 54 58 2 Mahindra & Mahindra 952 1,004 1,119 8 13 14 15 15 18 32 43 56 2 IOC 4,844 3,760 5,120 3 3 9 8 57 94 135 197 44 6 ICICI Bank 333 376 435 14 84 95 83 13 79 104 157 41 5 BPCL 2,846 2,075 2,586 -5 4 8 7 30 50 71 84 29 2 Cipla 171 188 208 10 19 23 23 21 16 23 26 29 1 Reliance Inds. 5,959 4,882 6,115 1 15 18 21 20 431 427 706 28 17 Hind. Unilever 388 439 507 14 25 26 27 20 67 81 104 24 2 Zee Entertainment 81 72 86 3 20 19 25 15 9 9 15 24 0 Bajaj Finserv 172 168 203 9 71 74 83 17 34 26 51 23 1 ONGC 4,250 4,216 4,590 4 14 11 14 1 168 162 251 22 5 Dr Reddy’ s Labs 167 196 217 14 21 25 25 23 20 27 30 21 1 State Bank 981 1,093 1,205 11 69 68 68 10 198 211 290 21 6 Hindalco 1,181 1,298 1,456 11 12 11 12 12 39 38 56 20 1 IndusInd Bank 121 130 145 10 90 88 89 9 45 45 64 20 1 Medium PAT Gr. (0-20%) 12,985 12,966 14,842 7 28 29 30 10 2,251 2,202 2,694 9 28 Sun Pharma 323 331 369 7 20 22 23 15 39 46 56 19 1 Bajaj Finance 135 145 177 15 83 87 87 17 53 44 72 17 1 HDFC Bank 562 646 734 14 87 87 89 16 263 301 357 17 6 Britannia 116 137 149 13 16 19 18 19 14 20 19 17 0 Shree Cement 119 110 131 5 31 30 32 6 16 15 21 15 0 Ultratech Cement 421 378 446 3 22 24 25 9 43 39 56 15 1 HDFC 127 139 154 10 98 97 97 9 96 115 128 15 2 Adani Ports 119 121 141 9 50 62 63 24 38 40 50 15 1 Titan Company 211 170 245 8 12 10 12 9 15 9 20 14 0 Maruti Suzuki 757 650 787 2 10 8 12 12 57 46 73 13 1 HCL Technologies 707 742 828 8 24 25 25 12 111 121 139 12 2 HDFC Life Insur. 322 348 409 13 3 3 4 26 13 14 16 11 0 Infosys 908 982 1,111 11 25 26 26 14 166 177 204 11 2 Nestle 124 135 153 11 23 24 24 12 20 21 25 11 0 Eicher Motors 91 86 104 7 24 22 26 12 18 14 22 11 0 UPL 358 378 411 7 21 22 23 11 27 28 34 11 0 Kotak Mahindra Bank 135 149 168 12 74 74 74 11 86 82 102 9 1 Hero MotoCorp 288 301 338 8 14 14 14 11 31 30 35 7 0 Power Grid Corp. 394 406 435 5 88 90 90 6 111 121 127 7 1 TCS 1,569 1,587 1,805 7 27 27 27 8 324 316 374 7 3 NTPC 1,143 1,096 1,276 6 32 32 33 7 137 142 157 7 1 Tech Mahindra 369 381 426 8 16 15 17 12 40 37 46 7 0 Wipro 613 608 644 2 21 22 23 8 97 99 107 5 1 Asian Paints 202 195 227 6 21 20 21 6 28 24 30 4 0 Coal India 961 886 1,052 5 23 15 23 6 167 99 178 3 1 Larsen & Toubro 1,455 1,419 1,631 6 11 11 12 8 89 68 91 1 0 ITC 456 440 491 4 39 36 39 3 153 130 155 1 0 PAT de-gr. (<0%) 3,961 3,707 4,368 5 12 12 15 18 115 35 222 39 7 Grasim Industries 186 140 186 0 12 7 12 -4 44 26 44 0 0 Bharti Infratel 146 144 149 1 50 52 52 3 33 31 33 0 0 Bajaj Auto 299 276 311 2 17 18 18 5 54 49 53 -1 0 GAIL 719 594 735 1 12 13 14 11 74 53 69 -3 0 Tata Motors 2,611 2,553 2,986 7 9 9 13 29 -91 -124 23 Loss 7 Nifty (PAT free float) 42,643 39,814 47,015 5 20 22 23 14 1,928 2,018 2,814 21 100

August 2020 11 Strategy

Sector-wise: Highlights / Surprises / Guidance

AUTO: Demand recovery strong, supply chain catching up; Tractors/2Ws least hurt by op. deleverage  Supply chain constraints restrict demand recovery: Large part of the quarter (festive and marriage season during Apr-May’20) remaining under lockdown (excl. tractors), low BS6 inventory and supply chain constraints resulted in volume decline of 55%/63%/83%/13% YoY in 2Ws/PVs/CVs/Tractors. The demand recovery surprised OEMs and dealers alike; however, production and supply chain constraints restricted wholesale numbers. Total revenue for our Auto universe stood at ~INR667.6b (v/s est. INR582.3b). EBIDTA could just reach above break- even level at ~INR2.1b (v/s est. loss of ~INR44.3b). Recurring loss stood at ~INR117.7b (v/s est. INR94.7b). While some green-shoots were visible – evident from the sustained demand in Aug’20 – we believe it is pent-up demand along with market acceptance of the BS6 price hike.  Other expenses surprise positively across Auto industry: All companies reported substantially lower other expenses, driven partially by deferment of certain expenses (SG&A, maintenance, etc.) and cost cutting (fixed as well as variable). This was one of the biggest factors, which drove the beat to our estimates across auto companies. Most company managements have indicated that large part of these costs would gradually normalize, though cost cutting initiatives targeted toward fixed cost should drive 10-20% savings.  Tractors/2Ws maintain positive EBITDA; PVs/CVs report EBITDA losses: Tractor/2W OEMs were able to maintain positive EBITDA, despite very low utilization (particularly for 2Ws) due to relatively lower fixed costs and other expenses. Despite higher realizations (due to higher non-vehicular sales) and lower-than-estimated other expenses, PV/CV OEMs reported EBITDA losses owing to the high fixed cost nature of the business.  Demand recovery and lower other expenses lead to upgrades: We are upgrading volume estimates for FY21/FY22E across segments as well as factoring in partial sustenance of lower other expenses. Hence, we have upgraded FY22E EPS estimates across OEMs – with highest for TTMT, AL (+14%), EIM (+6%), TVSL (+5%) and ESC (+7%). Component players too are recovering in line with the demand revival. Our earnings estimates for FY22E have increased for BOS (+7.2%) and BHFC (+4.8%), while it has been cut for CEAT (6%) to factor in the higher interest cost.  Valuation and view: We prefer companies with higher rural exposure as well as segments with low competitive intensity. Also, we prefer plays on global PVs due to stronger recovery owing to support from governments. Our top picks among large-caps are M&M and EIM. In midcaps, our top picks are MSS and ENDU.  Positive surprises: BJAUT, BHFC, CEAT, EIM, ESC, HMCL, M&M, MACA  Negative surprises: EXID

Guidance highlights:  MSIL: Increase in entry-level car/second-hand car demand and first-time buyers confirms the trend of a shift toward personal mobility. With continuous ramp-up in production, it should be able to meet the current and upcoming festive season demand.  M&M: Tractors are expected to grow in FY21 (subject to supplies); however, actual auto demand recovery and its sustainability remains to be tested as supplies are still just 50-60% of normal. Rural growth story remains intact due to high government spends on agricultural and rural sector. Continued focus remains on capital allocation and the company has decided to not bid for vehicle orders from USPS.  TTMT: JLR – JLR Project Charge delivered total savings of GBP1.2b (cost savings of GBP0.5b). It has increased FY21 target further from GBP1.5b to GBP2.5b. It launched the Defender across markets and has strong order book of over 30k units. The Defender is expected to be a volume driver with annual volumes expected at >100k units. India M&HCV business is the worst hit with ~20% utilization level and no expectation of recovery before 3QFY21.  BJAUT: Domestic motorcycle demand in Jul’20 stood at 80-85% of levels seen in Jul’19, with no down-trading across segments. Inventory is less than 30 days of current retails. 3W demand is 20% of normal levels, although Cargo 3W is faring relatively better. Export demand for motorcycles is back at 80-85% of Jul’19 levels. 3W exports are at 70-75% of normal levels. Supply side is slowly ramping up with manufacturing levels at 65-75% capacity utilization. Outlets for motorcycles (95%) and 3Ws (85%) are operational.

August 2020 12 Strategy

 HMCL: Demand does not constitute only pent-up demand and the recovery seems sustainable. Rural is seeing a V-shaped recovery, while urban is lagging behind due to sporadic lockdowns. It is quite confident of market share gains in 1QFY21 sustaining, driven by rural buoyancy, response to BS6 products, a refreshed portfolio (Passion, Glamour), and the plugging of product gaps (scooters and premium).  TVSL: Management expects demand recovery in 2HFY21, with TVS performing better than industry on the back of its portfolio. It expects premiumization to continue, albeit with a possible delay by 1-2 quarters due to COVID. This should benefit Apache and Ntorq.  EIM: Bookings are almost back to pre-COVID levels and inquiries are also higher. Bookings have sustained at pre- COVID levels for the last 6-8 weeks, making management believe that it is not just pent-up demand. Bigger cities are below average and smaller cities are above average. Supply chain constraints continue to affect production. It expects to have normal production by end of Aug-Sep’20 (assuming no further impact of COVID). New product launch is expected in Aug-Sep’20. Future product launches are on track and timelines have not changed for them. VECV acquired Volvo Bus India for INR1.05b, completing its product portfolio of buses.  Motherson Sumi: Gradual ramp-up has been witnessed in plants globally with 84% plants running at more than 50% capacity. Strong demand is expected for 2QFY21 as it is not seeing any major delays in any programs. Losses at green-field plants further reduced (to EBITDA loss of EUR16m), driven by manpower reduction, improving efficiencies/reducing scrap and other structural improvements. The US plant has slashed manpower by 800 people and expects further reduction as it is working on trimming absenteeism. It expects to reach pre-COVID revenues by Sep’20. Currently, revenues are at 80% of last years’ levels.  BHFC: Revenue should decline in 2QFY21 on YoY basis. However, domestic revenue should be flat with growth in industrial, PVs, mining and tractors to cover for the expected 67% decline in CVs. Export revenue (excl. Oil and Gas) should also remain flat in 2QFY21 YoY. The Oil and Gas business will be lower, however, Brent sustaining above USD42/barrel can drive demand recovery. Net ordering trend has been positive for US class-8 trucks over the last two months and has seen slow traction toward increased demand.

Exhibit 18: Key operating indicators Volumes ('000 units) EBITDA margins (%) Adj PAT (INR M) 1QFY21 YoY (%) QoQ (%) 1QFY21 YoY (bp) QoQ (bp) 1QFY21 YoY (%) QoQ (%) BJAUT 443 -64.5 -55.3 13.3 -220 -510 5,280 -53.1 -59.7 HMCL 563 -69.4 -57.8 3.6 -1,080 -690 613 -90.3 -90.1 TVS Motor 267 -71.1 -57.8 -3.4 -1,140 -1,040 -1,391 -197.7 -240.1 MSIL 77 -81.0 -80.1 -21.0 -3,140 -2,950 -2,494 -117.4 -119.3 MM 95 -56.3 -37.2 10.3 -380 -340 390 -95.8 -87.9 TTMT (S/A) 25 -81.8 -75.3 -26.2 -3,260 -2,180 -21,406 2,305.5 -4.5 TTMT (JLR) * 65 -44.8 -47.6 3.5 -70 -120 -648 66.7 22.0 TTMT (Cons) 2.0 -290 -180 -84,420 135.5 21 Ashok Leyland 4 -90.4 -85.0 -51.2 -6,060 -5,600 -3,876 -259.2 3,177.6 Eicher (RE) 57 -68.8 -64.8 0.2 -2,570 -2,060 123 -97.5 -96.4 Eicher (VECV) 2 -84.0 -81.7 -11.2 -1,680 -1,300 -1,200 -416.3 199.1 Eicher (Consol) 0.2 -2,570 -2,060 -552 -112.2 -118.1 Agg. (ex JLR) 1,534 -69.4 -59.6 -4.0 -1,560 -1,270 -23,435 -148.2 -238.2

JLR in GBP million; Source: MOFSL, Company

Exhibit 19: Positive surprise in other expenses – biggest factor for the beat in estimates INR b 1QFY21 1QFY20 YoY (%) 4QFY20 QoQ (%) BJAUT 2.7 6.4 -58 5.6 -52.2 HMCL 3.9 8.1 -52.4 8.2 -53 TVSL 2 5.1 -61.1 4 -51.2 MSIL 13 29.9 -56.5 30.4 -57.2 MM 6.2 14.5 -57 12.7 -51.2 TTMT (S/A) 6.6 20.5 -67.8 18.5 -64.2 TTMT (Consol) 57.3 109.8 -47.8 116.1 -50.6 AL 2.1 6.7 -68.4 5.2 -58.9 EIM 1.2 2.7 -53.9 2.9 -57.7

August 2020 13 Strategy

Exhibit 21: …due to EBITDA loss in PVs/CVs (EBITDA Exhibit 20: Aggregate EBITDA margin declined YoY… margins, %)

Aggregate (excl JLR) 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 18

10.2 11.9 11.3 11.8 0.4 11 7.3

13.0 14.8 14.1 13.4

6.3

4 (3.0) (1.8) (2.1)

(31.1) -3

-10

2W Cars CVs 1QFY15 3QFY15 1QFY16 3QFY16 1QFY17 3QFY17 1QFY18 3QFY18 1QFY19 3QFY19 1QFY20 3QFY20 1QFY21 Source: MOFSL, Company Source: MOFSL, Company

Exhibit 22: Revised EPS estimates FY21E FY22E Rev Old Chg (%) Rev Old Chg (%) Bajaj Auto 168.3 165.0 2.0 183.2 179.2 2.3 Hero MotoCorp 151.9 139.9 8.6 176.2 171.6 2.7 TVS Motor 10.3 10.1 1.8 17.5 16.7 5.0 Eicher Motors* 510.1 483.8 5.5 822.0 776.8 5.8 Maruti* 152.1 152.1 0.0 241.8 242.0 -0.1 M&M (incl MVML) 28.2 25.9 9.1 35.3 34.3 3.0 Tata Motors* -34.4 -31.9 -7.8 5.9 2.2 163.2 Ashok Leyland -0.4 -0.3 13.8 2.3 2.0 14.0 Escorts 62.4 57.2 9.0 71.6 67.1 6.8 Amara Raja 33.8 32.7 3.5 39.1 37.8 3.5 Bharat Forge* 2.9 2.7 5.6 15.1 14.4 4.7 BOSCH 368.8 323.4 14.0 460.4 429.4 7.2 Ceat 63.2 63.5 -0.5 75.6 80.5 -6.1 Endurance Tech* 30.0 30.0 0.0 46.1 46.1 0.0 Exide Industries 8.9 9.3 -4.5 11.0 11.2 -1.4 Mahindra CIE * 1.9 -0.6 415.8 9.7 9.4 2.5

Motherson Sumi * 1.1 1.2 -4.8 5.5 5.5 0.4 * Consolidated estimates; Source: MOFSL, Company

CAPITAL GOODS: Cost-saving measures lead to earnings surprise; growth inching toward normalization Note: Our analysis excludes BHEL and IRB Infrastructure as they are yet to report their earnings.  Revenue growth in line with our estimates: Overall revenue for our Capital Goods coverage universe declined 36% YoY and was in line with our estimates. However, the aggregate revenue is ex-BHEL, which has generally underperformed the sector over the past few quarters. The revenues of short-cycle businesses such as ABB, Siemens, and Cummins declined by 43%, 59%, and 63% YoY, respectively. Conversely, L&T, Thermax, Bharat Electronics (BEL), and Engineers India declined 20–50%. This clearly indicates the impact of the COVID-19-led shutdown was higher on short-cycle businesses v/s order book-driven companies. Companies in the Consumer Durables segment were impacted disproportionately by the COVID-19-led lockdown as almost 45 days of peak season sales were lost in 1QFY21, with revenues declining by 45–60% YoY. BEL and L&T demonstrated strong execution capabilities, with revenue declines limited to 21% and 28% YoY, respectively. Despite the shutdown impacting execution by 30–40 days, Ashoka Buildcon (ASBL) reported 35% YoY decline in sales. The biggest surprise came from KNR Constructions (KNR), which reported a 3% YoY increase in revenue v/s our expectation of 35% YoY decline.  Cost rationalization stands out: Operating profit plunged by 60% YoY, but came in above our expectations. Ex- L&T, the decline stood at 72% YoY v/s our expectation of 87% decline. L&T’s core E&C margins surprised at 3.9% (v/s our est. of 2.4%) in spite of 46% YoY decline in E&C core revenues. As expected, higher fixed costs, coupled with loss of sales, came down heavily on operating performance. Sharp decline was reported in

August 2020 14 Strategy

operating profit by: ABB (-81% YoY), Blue Star (-99% YoY), Cummins (-98% YoY), Engineers India (-85% YoY), and Voltas (-77% YoY). On the other hand, decline was limited to 48–58% in BEL, Crompton, Havells, and L&T. Lower fixed cost absorption led to losses at the operating level in Siemens and Thermax. Stringent cost measures led to higher-than-estimated EBITDA for ABB, BEL, Blue Star, Crompton, Havells, and Voltas. Consumer durable companies demonstrated higher agility to sales decline by cutting down on ad spends as they formed 3–5% of total sales in the pre-COVID-19 era. EBITDA decline for ASBL stood at 25% v/s our est. of 65% YoY as one-time release of contingencies aided operating profit.  Adj. PAT beats muted expectations: Aggregate decline in PAT stood at 83% YoY and was 33% ahead of our subdued expectation. Losses from L&T Finance Holdings hampered consolidated PAT for L&T, which declined by 95% YoY and stood 75% below our expectation. Ex-L&T, adj. PAT across our coverage universe declined 40– 80%, with Blue Star, Siemens, and Thermax reporting losses. The cost-saving measures helped the bottom line as well, resulting in an earnings surprise on an aggregate basis. Note that the absolute level is a low base and hence the beat seems higher in percentage terms. Adj. PAT for ASBL and KNR was significantly higher than our expectation.  Order inflow remains weak amid uncertainty: Order inflow declined 36% YoY and 54% sequentially, weighed by an uncertain macro environment, coupled with shutdown, which affected ordering activity. Ex-L&T, decline in order inflow stood lower at 21% YoY and 18% sequentially. For L&T, order inflow declined 39% YoY, with core E&C order inflow declining 55% YoY. BEL bucked the trend, reporting a ~70% YoY increase in order inflow, partly aided by the lower base effect. BEL reported strong orders for ventilators, advanced torpedo defense systems and smart city projects. Overall, management commentaries indicate some revival in ordering activity toward 2HFY21 as businesses fully assess the impact of the COVID-19-led disruption. However, ordering activity should remain subdued for FY21. Most businesses are expected to exercise caution when bidding and keep an eye on working capital requirements and liquidity availability.  Working capital, liquidity, and staggered return of labor remain challenges: Most project sites are at 50–70% occupancy levels with 70–90% of the migrant workforce slowly returning to work. However, execution is yet to commence full throttle. Also, companies are expected to witness some elongation in working capital cycles due to payment delays and extended support measures to vendors. Liquidity challenges persist for the sector as banks continue to be averse to financing the sector. This is reflected in the fact that bank credit to the Infrastructure sector has declined from peak levels.  Top picks: L&T is our top pick in the Capital Goods sector, given: (a) its better domestic execution, (b) control over working capital cycle, and (c) leaner balance sheet on account of non-core asset divestments. ABB is our preferred pick to play the Automation and Digitalization theme. In the Consumer Durables space, we like Voltas, given its strong UCP (Unitary Cooling Product) revenue trajectory and market leadership in the AC category. In Infrastructure, our top picks are KNR and Ashoka buildcon, given their: (a) ability to execute projects in a timely manner and (b) healthy balance sheets.  Positive surprises in 1Q: ABB, Bharat Electronics, Crompton, Engineers India, Ashoka Buildcon, KNR Constructions, and Voltas  Negative surprises in 1Q: Cummins, L&T, Siemens, and Thermax

Guidance and management commentary highlights:  L&T: Management expects the current working capital situation to be at peak levels on an absolute level, although it stands higher as a percentage of sales. Labor availability at 190k is sufficient for the upcoming monsoon season.  ABB India: The velocity of orders and revenues has been encouraging currently, with ABB witnessing double- digit YoY growth on a like-to-like basis.  Cummins: CPCB4+ norms are likely to be deferred by nine months (v/s the earlier timeline of Jul’21). This may open up potential exports to the developed markets of the US and China. However, it is difficult to quantify the opportunity currently.  Havells: Channel inventory is now lower than before as channels have turned cautious and are working with optimum inventory. The intensity of recovery was slower in the second half of July due to intermittent lockdowns.

August 2020 15 Strategy

 Voltas: Company-level inventory stood at 140 days, while that in the channel stood at 40–45 days.  Crompton: Management expects price erosion in the B2C Lighting segment to have bottomed out. B2B Lighting may witness some more price erosion.  Siemens: All sites are now operating at 20–70% utilization levels. The strength of migrant labor now stands at ~60%, up from 15–20%, post the lifting of the lockdown. 10 of the 22 factories of SIEM are in Maharashtra, with the most falling in containment zones.  Ashoka Buildcon: NHAI has set a target to award 4,500kms of roads in FY21. ~3,200kms of ordering has already been announced thus far. Also, to ease liquidity for infrastructure companies, NHAI has adopted a monthly billing policy.

Exhibit 23: Book-to-bill ratio (ex-BHEL) largely stable at ~1.9x

Order book (INR b) BTB (x) 2.7 2.5 2.4 2.1 1.9 2.0 2.0 2.0 2.0 2.0 2.0 1.9 2.0 1.9 1.8 1.8 1.8 1.7 1.7 1.7 1.8 1.8 1.8 2,884 2,555 2,587 2,651 2,594 2,602 2,827 2,844 2,794 2,926 2,947 2,907 3,047 2,889 2,993 3,090 3,135 3,206 3,216 3,248 3,283 3,261 3,281

3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21

Exhibit 24: Aggregate revenue growth (ex-BHEL and IRB Infra) Exhibit 25: Aggregate EBITDA growth (ex-BHEL and IRB Infra) Revenue growth (%) EBITDA growth (%)

26.9 28.9 22.1 18.9 18.5 14.6 16.0 13.5 20.3 15.7 11.8 9.1 8.4 12.2 9.1 9.5 9.9 3.1 6.7 3.0 -1.0 -1.9 -2.4 -0.1

-59.6 -35.6 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21

Exhibit 26: Aggregate EBITDA margin (ex-BHEL and IRB Infra) Exhibit 27: Aggregate PAT growth (ex-BHEL and IRB Infra) EBITDA Margin (%) PAT growth (%) 13.2 12.5 29.1 30.3 25.9 12.0 12.2 11.9 12.2 21.6 20.2 11.5 11.3 11.3 12.5 13.1 9.6 10.7 10.9 5.9 1.4 9.3 -1.9 -5.0 7.1

-82.6 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21

August 2020 16 Strategy

CEMENT: Profitability improves, led by better realization and lower cost  Volumes down 30% YoY: 1QFY21 volumes for cement companies under our coverage were down 30% YoY (v/s est. 30% YoY decline). This was attributable to nationwide lockdown and plant shutdowns in April’20. In comparison, overall industry volumes declined 34% YoY. SRCM, DBEL, and JKLC fared better than others with lower volume decline of 18-20% YoY, while India Cements fared the worst with a decline of 53% YoY. Realization for our coverage universe rose 6% QoQ driven by sharp price hikes, but declined marginally YoY. As a result, aggregate revenue for our coverage universe (excluding Grasim) declined 31% YoY to INR205.6b.  Profitability driven by cost reduction: Most of the companies in our coverage surprised on margins as the impact of negative operating leverage (from lower volumes) was negated through sharp fixed cost reductions and lower fuel costs. Our coverage EBITDA/t improved 6%/24% YoY/QoQ to INR1,327/t (v/s est. INR1,071/t). Cost/t declined 3% YoY (1% QoQ) to INR3,773/t. However, due to lower volumes, aggregate EBITDA/PAT still fell by 26%/22% YoY to INR53.0b/INR24.2b respectively. Including Grasim, which reported negative margins, EBITDA/PAT for our coverage universe declined 35%/38% YoY.  Top picks: Given the sub-optimal utilization expected across regions (due to COVID-19), the sustenance of production discipline would be critical to prices and margins. This, we believe, would be tougher to achieve for regions with higher capacity growth. Eastern India, with ~30% capacity growth, is the worst placed and is thus our least preferred region. In such an uncertain demand environment, we prefer companies that: (a) are moving down the cost curve, (b) have potential for market share gains, and (c) provide valuation comfort. Thus, UltraTech and ACC are our top large-cap picks and JK Cement our top mid-cap pick.  Positive surprises: DBEL, ACC, Ambuja, UltraTech, ICEM  Negative surprise: Grasim, BCORP

Guidance highlights: Most companies in post-results management calls reported utilization at ~70% for July, driven by strong rural/semi- urban demand. While government projects have started to pick up, the Real Estate sector continues to face labor issues. 2QFY21 volumes are thus expected to be better. Here are the other guidance highlights:  UTCEM: 1) Capex guidance for FY21 has been raised to INR15b, from INR10b (FY20: INR17b), as some return- accretive projects are being accelerated. 2) Guided for fixed cost reduction (including employee costs) by 10% or INR5.0b in FY21 (implying ~INR70/t) on a sustainable basis.  DBEL: 1) Management informed that as volumes pick up, some of the overhead costs are likely to return. 2) Capex guidance stands at INR12.0b for FY21, including spend of INR3.5–4.0b on the Murli Industries acquisition. 3) A 3.0mt clinker line at Rajgangpur is undergoing trial runs and is expected to be commissioned in 3QFY21; the Bengal and Cuttack grinding units would be commissioned in Dec’20 and Mar’21, respectively.  JKLC: 1) Lower profitability in the eastern region resulted in lower EBITDA/t v/s the industry. 2) Management informed that Jun–Jul’20 sales volumes were flat YoY. 3) Cement prices declined marginally in Jul’20 (MoM) and are expected to decline further due to the monsoons.  TRCL: 1) The Odisha grinding unit is expected to be commissioned by Sep’20. 2) The integrated plant in Kurnool and the Jayanthipuram 1.5mt clinker should get commissioned by Mar’21, as guided earlier.

Exhibit 28: Volumes declined 30% YoY for coverage universe Exhibit 29: EBITDA per ton increased 6% YoY

Aggregate Vol (m ton) Volume growth (%) Aggregate EBITDA (Rs/ton)

8 2 4 8 8 14 21 14 19 20 16 17 1 0 1 -13

-30 1,012 1,034 1,254 1,068 1,327 44 38 41 49 47 43 49 56 56 51 57 66 57 51 58 57 40 936 818 800 914 879 924 865 742 729 906 997 913 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21

August 2020 17 Strategy

Exhibit 30: Trend in key operating parameters Volume (m ton) Realization (INR/ton) EBITDA (INR/ton)

1QFY21 YoY (%) QoQ (%) 1QFY21 YoY (INR) QoQ (INR) 1QFY20 YoY (INR) QoQ (INR) ACC 4.8 -33.9 -27.4 5,164 34 525 1,102 16 209 Ambuja Cement 4.2 -28.6 -27.4 5,119 159 336 1,421 231 375 UltraTech Cement 14.7 -31.6 -31.7 5,211 -121 199 1,416 39 278 Birla Corporation 2.4 -33.8 -27.0 4,935 -19 47 967 -90 -77 India Cements 1.4 -53.1 -46.1 5,301 473 950 1,090 295 836 Shree Cement 4.9 -18.6 -28.6 4,717 -296 58 1,421 -69 -141 Dalmia Bharat 3.7 -19.6 -29.2 5,393 -182 591 1,678 214 695 JK Lakshmi Cement 1.9 -18.2 -22.7 4,331 -140 26 752 24 -67 The Ramco Cements 1.9 -28.2 -33.8 5,284 295 559 1,283 65 328 Sector Agg. 39.9 -29.8 -30.3 5,099 -51 298 1,327 73 258

Exhibit 31: Exhibit 4: Cement universe Realization per ton increased 6% QoQ in 1QFY21

Realization (Rs/ton) 4,505 4,568 4,431 4,627 4,478 4,615 4,474 4,279 4,446 4,547 4,471 4,383 4,697 4,692 4,627 4,667 4,647 4,689 4,613 4,671 5,151 4,947 4,729 4,802 5,099

1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 Source: MOSL Exhibit 32: Aggregate EBITDA declined 26% YoY in 1QFY21

Aggregate EBITDA (Rs M) 31,216 26,192 23,512 34,439 31,801 30,261 30,819 40,818 45,201 36,688 33,105 39,456 50,172 39,099 39,732 47,756 49,954 38,918 42,068 59,855 71,392 51,327 52,751 61,094 53,010

1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21

Source: MOFSL

CONSUMER: Better-than-expected results with cautious recovery; Rural the bright spot  Lockdown affects performances of most players: In 1QFY21, cumulative sales declined 15.4% YoY (v/s est. 20.9% decline), and EBITDA/PBT fell 26.3%/26.2% YoY (v/s est. 30.8%/32.4% decline). PAT declined 19.5% YoY (v/s est. 28.8% decline). This was at a lower rate v/s PBT on account of corporate tax cuts / tax write-backs due to losses reported by some companies. Most of the companies in our Consumer universe beat estimates on the volume and sales fronts. The beat was significant for HUVR, CLGT, HMN, JYL, APNT, and PIDI (the last two over very low expectations). On the other hand, discretionaries such as ITC, UBBL, and UNSP were drastically impacted on a YoY basis, while staples companies such as HUVR, NEST, CLGT, and JYL were relatively less impacted. Notably, foods companies have done exceptionally well in these tough times, with BRIT and TGBL registering strong double-digit topline growth.  Recovery seen, but managements indicate caution: With the economy gradually unlocking since May, companies indicated recovery has been seen in consumption. However, managements also cautioned about sporadic lockdowns being re-imposed in different parts of the country. Rural grew faster than urban on account

August 2020 18 Strategy

of being less affected by COVID-19, indicating the reversal of the trend seen in the last few quarters (where urban was growing faster). Notably, the outlook for rural is positive, supported by a good harvest, government spending, and a good monsoon. The commodity environment is expected to continue to be benign. While companies significantly cut their ad spends in 1QFY21, managements indicated the same would not be sustainable going forward.  Margin performance mixed in 1QFY21: Most of the companies that reported significant sales decline witnessed margin compression due to operational de-leverage (barring DABUR, HMN, and MRCO). This was despite significant cost-cutting, especially on discretionary expenses such as ads and travel. On the other hand, companies that did register sales growth witnessed margin expansion (except HUVR). Notably, BRIT delivered its best ever margin performance in 1QFY21. Overall, barring ITC and UBBL, all the companies reported EBITDA above or in line with our expectations. EBITDA for our coverage universe fell 26.3% YoY (v/s est. of 30.8% decline). The EBITDA beat (v/s expectation) was particularly strong for APNT, BRIT, CLGT, HMN, JYL, PIDI and TGBL.  Top picks – HUVR, DABUR, MRCO: We continue to prefer HUVR as our large-cap pick. Particularly in the current volatile environment, HUVR stands out like a beacon of light in terms of superior visibility on near- and medium-term earnings. Moreover, after factoring the GSKCH merger and synergies, its valuations still offer scope for reasonable upside. We also like DABUR as it offers the best visibility given: (a) the successful efforts by the new CEO to boost growth, (b) its high rural dependence, and (c) the large part of its portfolio is non- discretionary in nature. We are bullish on MRCO as it has a more resilient portfolio than peers to withstand the COVID-19-led sales and earnings decline in FY21. Furthermore, the outlook on material costs is also better than the earlier expectation of possible inflation.  Positive surprises: APNT, BRIT, CLGT, DABUR, HMN, GCPL, HUVR, JYL, MRCO, PIDI, TGBL, UNSP  Negative surprises: ITC, NEST, UBBL  PAG and PGHH are yet to declare their June 2020 quarter results.

Guidance highlights:  APNT: The demand outlook for rural and lower tier cities is good. Unless the mortality rate increases due to COVID-19, APNT does not expect the improved sentiment to reverse. However, the re-imposition of sporadic lockdowns would lead to a demand impact in the affected pockets. The management is looking at demand on a quarter-to-quarter basis. The predictability of demand for the festive season is weak currently. No change was seen in pricing in 1QFY21, and change is not likely in 2QFY21 either.  BRIT: BRIT rationalized advertisement and sales promotion (A&SP) spend in 1QFY21, with ~200bp of the 460bp reduction in other expenses as a percentage of sales driven by A&SP. The A&SP reduction is not sustainable going forward. Capex of INR7b over the next two years (with Dairy capex to be determined and added later) would be significantly higher than the INR2–2.5b annual rate expected earlier.  DABUR: Secondary sales growth was at 7–8% in Jun’20, and similar growth was seen in Jul’20 as well. Recovery has been witnessed in all the categories that were impacted in 1QFY21, while Healthcare segment sales remain extremely healthy. The Healthcare segment’s contribution was up 10 percentage points in the quarter. Dabur expects this business (31% of sales last year), which is already more profitable than the rest of the portfolio, to increase sharply for the full year as well. Foods could go back to 10% growth levels over the medium term. Rural sales grew 1%, while urban declined 8–9% for the quarter. Expect rural growth to be higher going forward. Some inflation is being witnessed in Ayurvedic product costs. Expect 3% inflation in the Agri product basket as well. Project Samriddhi, the INR1–1.2b cost optimization program, is likely to be implemented in FY21. The channel pipeline has been corrected to 16 days from 20–21 days over the last year despite various NPD additions. Management believes a further reduction in the pipeline by another 4–5 days may be possible.  GCPL: Rural reported better sales than urban. While rural forms 30% of India sales, GCPL believes it has the SKUs to capitalize on the better-than-expected rural demand going forward. Expect sequential gross margin

August 2020 19 Strategy

improvement as the mix improves and owing to some price action by the company on Soaps. A sequential pickup in ad spends is expected in 2QFY21.  HUVR: The company maintained that rural is witnessing green shoots, but is yet to see full-fledged revival, despite performance v/s urban likely being better. Skin Care, Color Cosmetics, and Deodorants (15% of the portfolio) declined 45% YoY in 1QFY21. Skin Care showed signs of improvement in Jun’20 and is likely to fare better going forward. The Out-of-Home business (5% of the portfolio, mainly Ice-creams and Water Purifiers) declined 69% YoY and is likely to remain weak going forward. COVID-19-related sanitization costs would be lower hereafter, with the GSKCH integration cost also being somewhat lower.  MRCO: The business saw smart recovery, with 3% sales growth in May and June combined, with this momentum continuing in July as well. The company targets flattish sales for the full year, with over 20% EBITDA margins. From around INR2b sales in FY20, the Foods business’ sales are targeted at INR3–3.5b for FY21 and INR5b for FY22. Ad spends would decline 100–150bps YoY for FY21. Expect copra prices to see mild deflation during the year.  PIDI: Recovery was witnessed in June and July, although the management was unable to quantify how much of this was pent-up demand. Near-term demand appears uncertain as consumers remain reluctant about allowing laborers into their houses for furniture making. The company looks to tackle this problem by providing certifications to contractors stating they are following all the prudent measures. VAM costs for the quarter were in the USD650–700 range due to low demand. The management expects this to continue in the near term, with the caveat that these low levels are unlikely to sustain as the demand environment improves.  UNSP: Factories were fully operational and 80–85% of stores had reopened by end-Jun’20. However, the second wave of localized lockdowns in Jul’20 affected both manufacturing and retail. The impact of excise increase in May’ would be felt more in the subsequent quarters. Sentiment is improving, but cannot be extrapolated given the volatile situation, particularly for the Alcohol business in India. Other operating income was also affected by a plunge in franchisee income, which impacted gross margins by 160bp. Franchisee income stood at INR100m in 1QFY21 (v/s the quarterly average of INR500m in the pre-COVID-19 period). Expect ~40% decline on this front in the coming days. ENA costs have been flattish. The Glass industry was also under lockdown, and prices are expected to increase gradually.

Exhibit 33: Quarterly volume growth Quarterly volume growth (%) 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 Asian Paints (Domestic decorative)* 10.0 11.0 21.0 10.0 16.0 14.0 11.0 2.5 (35.0) Britannia (Base business) 11.0 11.0 7.0 7.0 3.0 3.0 3.0 0.0 21.0 Colgate (Toothpaste) 4.0 7.0 7.0 5.0 4.0 4.0 2.3 (8.0) 0.0 Dabur (Domestic FMCG) 21.0 8.1 12.4 4.3 9.6 4.8 5.6 (14.6) (9.7) Emami (Domestic) 18.0 (4.0) 3.5 0.0 0.0 1.0 (2.0) (4.0) (28.0) Hindustan Unilever (Domestic) 12.0 10.0 10.0 7.0 5.0 5.0 5.0 (7.0) 4.0 ITC (cigarette)* 1.0 6.0 7.0 8.0 3.0 2.5 2.5 (11.0) (37.0) Marico

Domestic 12.4 6.0 5.0 8.0 6.0 1.0 (1.0) (3.0) (14.0) Parachute 9.0 8.0 9.0 6.0 9.0 (1.0) (2.0) (8.0) (11.0) VAHO 15.0 5.0 7.0 1.0 7.0 0.0 (7.0) (11.0) (30.0) Saffola 10.0 5.0 2.0 18.0 3.0 1.0 11.0 25.0 16.0

Pidilite (Consumer bazaar) 20.2 11.0 13.0 4.0 6.0 (1.0) 2.0 (3.1) (58.6) *Our estimate Source: Company, MOFSL

August 2020 20 Strategy

Exhibit 35: Consumer aggregate EBITDA margin contracts by Exhibit 34: Momentum in sales growth down due to 310bp YoY due to operational de-leverage amid lower sales lockdown in lockdown

Consumer aggregate YoY sales growth (%) Consumer aggregate EBITDA margins (%) 25.6 12.1 13.7 25.2 9.5 10.9 24.9 6.8 7.2 9.1 7.4 24.3 24.5 24.4 24.4 5.5 4.8 23.7 24.0 24.0 23.7 22.5

-6.2 -15.4 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 Source: Company, MOFSL Source: Company, MOFSL

Exhibit 36: Aggregate adj. PAT declines 19.5% YoY, majorly due to lower sales in lockdown

Consumer aggregate YoY PAT growth (%)

27.0 17.0 17.7 18.5 23.7 10.2 14.8 12.1 9.5 11.7 0.3

-19.5 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21

Source: Company, MOFSL

FINANCIALS – BANKS: Bracing for asset quality shocks; moratorium book declines  1QFY21 was a challenging quarter for banks, and the economy as a whole, on account of the COVID-19-led lockdown and the subsequent impact on business activity. Banks reported sharp decline in fee income, weighed by muted business volumes. Moreover, elevated provisions at banks, led by COVID-19-related contingent provisions, continued to drag down earnings. Higher liquidity and sharp moderation in the rate environment resulted in margin pressure across banks and kept NII growth in check. However, strong control on operating expenses, partly aided by lower origination volumes, helped banks offset the sharp revenue decline.  On the business front, loan growth moderated across segments (barring HDFCB, which saw strong growth in the Corporate book), weighed by a weak macro environment. Loan growth contracted up to ~2% QoQ for large banks and up to 4–7% QoQ for mid-sized banks. Deposit growth showed strong traction during the quarter, and CASA ratios held largely steady despite a sharp cut in the SA rate effected by many banks.  On the asset quality front, steady decline was seen in the moratorium pool across most large banks. Under Moratorium 2.0, most banks reported declines of 50–60%. The moratorium benefit, however, led to banks reporting lower slippages during the quarter. As a result, they were able to make higher contingent/specific provisions to further strengthen the balance sheet and cushion the potential surge in credit cost once the loan moratorium has ended. Most banks in our coverage are looking to bolster their capital base and many (AXSB, ICICIBC, YES, IDFCB, and IIB) have already raised capital as they prepare to face the spike in the NPL formation rate once the moratorium ends.  Life insurers reported sharp decline in total APE, largely led by a drop in ULIP sales as well as reduced opportunities to cross-sell the Credit Life business. However, individual protection growth remained strong. Consequently, the top life insurers (barring MAXLIFE) reported a 30–44% plunge in total APE, and absolute VNB declined by 16–43%.  Private Banks – Business growth soft; COVID-19 provisions, sharp fee income drop impact earnings: Most private banks reported strong NII growth, and a drop in operating expenses helped offset the sharp decline in

August 2020 21 Strategy

fee income. This therefore helped maintain modest operating profits. On the other hand, elevated provisions, particularly toward COVID-19, impacted earnings. Banks reported moderation in loan growth across segments (barring HDFCB, which saw strong growth in the Corporate book). Loan growth contracted up to ~2% QoQ for large banks and up to 4–7% QoQ for mid-sized banks, while deposit growth showed strong traction. On the asset quality front, banks such as AXSB, KMB, and HDFCB reported moratorium books of 9–11%, while the book was marginally higher for IIB (16%) and ICICIBC (~17.5%). Furthermore, if adjusted for customers who are not paying their dues and have also not availed moratorium, the moratorium books of AXSB and ICICIBC would stand at ~15% and ~20%, respectively. The benefit of moratorium resulted in lower slippages during the quarter, which helped the banks further strengthen their provision coverage on existing NPLs. They were also able to build higher COVID-19-related provisions; our coverage banks are carrying excess provisions of up to 2.5% of total loans. BANDHAN holds the highest provisions at 2.6% of total loans, while other banks are carrying excess provisions of 0.5–1.5%. In terms of moratorium book, banks are carrying total provisions of up to 13% of the book.  Public Sector Banks – Strong performance by SBIN; BOB reports tepid trends: SBIN reported a strong quarter, led by robust NII growth, with domestic NIMs improving 30bp QoQ and controlled opex. Deposit growth also held very strong. The moratorium book for SBIN remains one of the lowest at ~9.5%. Conversely, BOB reported a weak operating performance, and elevated provisions led to net loss. The moratorium book remains at 21.4%; also, the watchlist increased further to 1.9% of loans and thus remains a key overhang for the stock.  Small Finance Banks – Operating performance holds strong, although business growth moderates: AU Bank reported strong operating profit at 53% YoY and Equitas posted decent operating profit at 19% YoY in the current environment. The banks continue to build COVID-19-related provisions. On the asset quality front, the moratorium book remains higher for EQUITAS at 43%, while it has declined to 11% for AUBANK (v/s 25% reported earlier). AUM growth moderated for both SFBs.  Life Insurance – APE sees steep decline; mix of Protection business continues to rise: The Insurance industry saw sharp decline in total APE, largely led by decline in ULIP sales. However, individual protection growth remained strong. In 1QFY21, life insurers (barring MAXLIFE) reported a 30–44% plunge in total APE. Absolute VNB declined across insurers in the range of 16–43%. However, the VNB margin expanded for IPRULIFE, led by higher protection share, while margins contracted for HDFCLIFE. On the cost front, total expenses (incl. commissions) declined 25%/23% YoY for HDFCLIFE/IPRULIFE.  Our view: While the banks have created higher provisions and strengthened their balance sheets, we remain watchful of asset quality as slippages are likely to increase once the moratorium ends. Although, relaxations by the RBI on restructuring would help control overall damage. Nevertheless, we estimate credit cost to remain elevated in the near term. Overall, we believe banks with a strong/granular liability franchise, higher liquidity, and strong capital levels would be able to tide over the crisis and gain market share as growth revives. We maintain our preference for ICICIBC, HDFCB, and SBIN, while among the life insurance players, we prefer IPRU Life.  Positive surprises: SBIN, IIB  Negative surprises: KMB, BOB (we downgraded BOB to Neutral during the quarter)

Guidance highlights:  HDFCB expects retail growth to remain tepid over the next few quarters, while wholesale trends would remain strong. Also, there is long-term guidance of 3–5% improvement in cost ratios over the next few years, led by digital initiatives.  KMB expects the benefit of interest rate cuts on savings deposits to flow into the current year, which could support margins. Overall, the near-term focus would be on preserving the balance sheet and continuing to build a strong liability franchise. On the lending side, it remains cautious on the unsecured portfolio. It would focus on the Mortgage business and would disburse loans to the MSME segments under a credit guarantee scheme. The bank is likely to exercise caution in lending to companies with high fixed cost, high leverage, etc.

August 2020 22 Strategy

 ICICIBC: The bank does not have any loan growth targets, but expects some incremental opportunity on the corporate side. On the cost side, the hiring rate would slow in the near term, while investments toward digital infrastructure would continue. The RoE guidance of 15% by 1QFY21 would be delayed by some quarters, with the near-term focus likely to be on preserving the balance sheet.  SBIN expects the loan pipeline for the corporate segment to be strong and thus expects disbursement trends to improve. Margins would remain stable at current levels. Furthermore, we expect recovery of INR100–120b from the resolution of large accounts by Dec’20.  AXSB expects credit cost to remain elevated and downgrades in the BB & below pool to continue, which would keep asset quality under pressure. The near-term focus would be on preserving the balance sheet.  Bandhan: The new customer acquisition rate would reach below 10% YoY for FY21E, while a higher focus would be on tapping the existing customer base. On the asset quality front, it expects credit cost of 2.0–2.2% for FY21E. However, a large proportion has already been incurred by making contingent provisions.  IIB expects deposits to grow faster than loan growth. It would continue to accelerate provisions toward stressed accounts and increase provision coverage to >70% in the near term.  RBK would not focus on loan growth over the next few quarters, but on preserving the balance sheet, maintaining excess liquidity, granularity, and improving cost of deposits. Margins are likely to decline in FY21. Also, fees earned on credit card spends would be lower in FY21 as the bank is likely to be cautious and thus block the card limits of customers in the high-risk category.

Exhibit 37: Earnings were impacted due to elevated Exhibit 38: Loan growth moderated, while deposit growth provisions and weak fee income trends remained steady for large banks 1QFY21 NII Growth (%) PPP Growth (%) PAT Growth (%) 1QFY21 NIM (%) Loan Growth (%) Deposit Growth (%) QoQ YoY QoQ YoY QoQ YoY 4QFY20 1QFY21 QoQ YoY QoQ YoY PSBs SBIN 3.0 3.0 -1.2 7.7 5.5 16.0 SBIN 17 16 (2) 36 17 81 BOB 2.6 2.6 -0.5 8.4 -1.2 4.3 BOB 0 5 (16) 1 (271) (222) PBs AXSB 3.6 3.4 -1.8 12.9 -1.9 16.2 AXSB 3 20 (0) (1) (180) (19) FB 3.0 3.1 -0.8 8.3 1.7 16.9 FB 7 12 (3) 19 33 4 HDFCB 4.3 4.3 1.0 20.9 3.7 24.6 HDFCB 3 18 (1) 15 (4) 20 ICICIBC 3.9 3.7 -2.2 6.5 4.0 21.3 ICICIBC 4 20 46 71 113 36 IIB 2 16 2 13 62 (64) IIB 4.3 4.3 -4.2 2.4 4.6 5.3 KMB 5 17 (4) 9 (2) (9) KMB 4.7 4.4 -7.2 -1.9 -0.5 12.3 RBL 2 27 (8) 14 23 (47) RBL 4.9 4.9 -2.3 -0.3 6.8 1.5 DCB (5) 1 (10) 15 15 (2) DCB 3.6 3.4 -1.1 4.2 -3.1 2.2 BANDHAN 8 15 4 17 6 (32) BANDHAN 8.1 8.2 3.5 17.7 6.0 35.0

Exhibit 39: Snapshot of moratorium availed by borrowers and COVID-19-related provisions built by banks Moratorium 1.0 Moratorium 2.0 Provision (INR b)

Loans % of % of Total COVID Total As a % of (1QFY21) (INR b) loans loans (INR b) Provision Provisions loans AXSB 5,613 25%-28% 9.7% 545 30.0 68.9 1.2% BANDHAN 697 ~71% 24% 167 14.4 17.8 2.6% DCBB 251 ~60% 26% 65 1.0 2.0 0.8% HDFCB 10,033 NA 9% 903 15.5 70.0 0.7% ICICIBC 6,312 ~30% 18% 1,105 82.8 96.7 1.5% IIB** 1,981 ~50% 16% 317 12.0 12.0 0.6% IDFC First 1,041 ~35% 28% 291 6.0 6.0 0.6% KMB 2,040 ~26% 9.65% 197 12.6 12.6 0.6% FB 1,213 ~35% 24% 291 1.9 1.9 0.2% RBK 567 ~33% 13.7% 78 3.6 3.6 0.6% AUBANK 263 ~25% 11% 29 2.8 2.8 1.1% EQUTAS 144 ~93% 43% 62 1.4 1.4 1.0% SBIN* 22,983 ~23% 9.5% 2,183 30.0 30.0 0.1%

SBI Cards 219 ~17% 7% 15 4.9 4.9 2.2% *For SBIN, moratorium book represents term loans that paid less than two EMI’s; **For IIB, the proportion of customers availing moratorium was disclosed in 1QFY21 earnings call Source: MOFSL, Company

August 2020 23 Strategy

FINANCIALS – NBFCs: A quarter of three divergent months; COVID-19 provisions dent profitability  As expected, 1QFY21 was a tough quarter for the NBFC sector. However, all NBFCs witnessed meaningful month-on-month improvement in all aspects – gradual branch openings, disbursements, collections, moratorium, etc. This improvement continued in July as well, albeit at a slower pace, given several local lockdowns in July.  Disbursements were down 50–80% across players. However, this did not result in a sharp correction in AUM because of: (a) lower repayments, as several customers were under moratorium, and (b) the capitalization of interest for moratorium customers.  Moratorium rates across players declined between April and June (refer to the exhibit below). However, the quantum of decline was divergent across players. Most companies incurred large one-off COVID-19 provisions once again in 1QFY21; key exceptions were PIEL and CIFC as they had incurred adequate provisions in 4QFY20 itself. The GNPL ratio was stable / improved marginally for most players in our coverage universe.  Liquidity situation improves: While the funding situation was tight immediately post the lockdown as well as post the closure of some debt schemes by a large AMC, it improved significantly in the second half of the quarter. NBFCs with a good parentage are now able to raise NCDs at 6–6.5% and CPs at 4% from the capital markets. Additionally, bank funding to NBFCs has gained traction. Smaller NBFCs with weaker credit ratings have been able to raise money from recent GoI/RBI schemes such as TLTRO, PCG, Special Liquidity Window, etc. Note that most companies under our coverage did not avail moratorium from their creditors. However, one funding route that was missing this quarter was securitization. Most banks are looking at buying out portfolios only after the moratorium ends. No company has tapped offshore markets this quarter.  HFCs – Mixed performance: Retail loan disbursements improved MoM and had reached 70% of run-rate levels for HDFC by June. HDFC also had strong disbursements in the corporate book, largely to AAA-rated non-real estate corporates. The moratorium rate in retail loans declined from 23% to 17% for the company. PNBHF had a subdued quarter with minimal disbursements. However, its overall moratorium rate improved sharply from 56% to 39%. The company has appointed Mr Hardayal Prasad as the new MD & CEO in August and has also taken the board’s approval for an INR18b equity raise via preferential allotment/rights issue.  Vehicle financiers – Collecting from moratorium customers: In line with our expectations, disbursements declined 60–90% YoY across players. Moratorium rates declined marginally for CIFC and SHTF, while the improvement for MMFS was meaningful (75% to 48%). However, regardless of the moratorium status, customers have been repaying their loans. 40% of MMFS’ customers under moratorium are repaying their loans. 50% of CIFC’s customers under moratorium have paid at least a partial installment since the moratorium. MMFS and SHTF took additional COVID-19 provisions in 1QFY21, in line with those taken in 4QFY20. However, CIFC did not take any meaningful COVID-19 provisions during the quarter as it believes the provisions on the balance sheet are adequate given the current circumstances.  Diversified financiers – Modest performances: With a high repayment rate, BAF’s loan book declined 6% QoQ to INR1.4t. However, moratorium improved meaningfully to 16% in June from 27% in April. BAF took INR14.5b COVID-19 provisions in 1QFY21, taking the total COVID-19 provision buffer to 1.8% of loans. LTFH reported net loss (excluding exceptional items) of INR782m, driven by a higher drag on NII due to excess liquidity and elevated credit costs (INR5.8b v/s INR3.1b QoQ). SCUF had a decent quarter on the asset quality front – moratorium rate dropped to 26% from 65% in the prior quarter, while collection efficiency improved to 80% in July.  Capital market players – Strong performances: ISEC reported strong numbers, aided by a surge in industry trading volumes as well as market share gains in cash and derivatives trading (260bp/150bp YoY respectively). The strong business momentum has sustained thus far in 2Q as well. IIFLWAM also reported numbers that beat our expectations, driven by higher-than-expected transactional revenue and lower opex. The company completed the acquisition of L&T Wealth Management in Apr’20.  Our view: We remain cautious on the sector and hence recommend investing in companies with a good parentage (such as HDFC) as they have the easiest access to debt capital at the best price. Vehicle financiers are

August 2020 24 Strategy

likely to have a mixed FY21; we expect a rebound in 2Ws and Tractors in 2QFY21, while reversal in other segments would be more prolonged. For wholesale financiers, we expect FY21 to be another year of de-growth and high credit costs. We are bullish on capital market players such as ISEC given the sectoral tailwinds, combined with strong execution by the management.  Positive surprises: HDFC, BAF, ISEC  Negative surprises: MUTH, LTFH  Rating changes: None  Guidance highlights: Companies have refrained from giving any FY21 guidance given the uncertain environment.

Exhibit 40: Summary of moratorium rate and COVID-19 provisions Company Moratorium % COVID Provisions (INR b) COVID Prov % COVID Prov % Loans (INR b) Phase 1 Phase 2 4QFY20 1QFY21 of loans of morat loans

Vehicle Financiers

CIFC 76 75 5.0 0.2 583 0.9% 1.2% MMFS 75 48 5.7 4.8 638 1.6% 3.4% STF 95 95 9.1 9.6 1,034 1.8% 1.9% Diversified Financiers

LTFH 36 35 3.1 5.8 989 0.9% 2.6% BAF 27 16 9.0 14.5 1,324 1.8% 11.1% SCUF 65 26 4.3 1.8 285 2.1% 8.2% Housing Finance

HDFC 26 22 5.5 4.0 4,657 0.2% 0.9% PNBHF 56 39 4.7 0.0 680 0.7% 1.8% Wholesale

PIEL 80 60 19.0 0.0 513 3.7% 6.2%

ABCL 33 28 0.9 0.5 459 0.3% 1.1% Source: MOSL, Company

Exhibit 42: Muted AUM growth performance by vehicle Exhibit 41: HDFC has maintained steady AUM growth (%) financiers (%)

HDFC PNBHF SHTF MMFS CIFC 60 32

45 24 30 16 15 0 8

-15 0 Q4 2018 Q4 2019 Q1 2019 Q2 2019 Q3 2019 Q4 2020 Q1 2020 Q2 2020 Q3 2020 Q4 2021 Q1 2019 Q4 2020 Q1 2020 Q2 2020 Q3 2020 Q4 2021 Q1 Source: MOFSL, Company Source: MOFSL, Company

Exhibit 43: Some recovery in PBT growth after a tough 4QFY20 PBT growth (%) 48 33 34 31 23 30 25 13 12 5 1

-48 Q2 2018 Q2 2018 Q3 2018 Q4 2019 Q1 2019 Q2 2019 Q3 2019 Q4 2020 Q1 2020 Q2 2020 Q3 2020 Q4 2021 Q1

Source: MOSL, Company

August 2020 25 Strategy

HEALTHCARE: A bumper quarter; Outlook remains positive  1QFY21 aggregate earnings of Pharma companies under our coverage were much better than expectations. While aggregate sales were up 5.7% to INR459b (in-line), the 24.5% EBITDA beat (+20% YoY to INR110b) and 32% PAT beat (+24.7% YoY to INR65b) were big surprises. This was largely led by significant cost savings in the domestic formulation (DF) segment and market share gains by API companies. However, the benefit was offset to some extent by subdued performance in the US.  Out of 17 companies, 12 delivered better-than-average aggregate earnings growth for the quarter. Muted earnings growth by GNP and earnings decline by BIOS/SUNP/LPC/GLXO dragged overall growth of the sector to some extent.  Large-caps – DIVIs showcased phenomenal 74% YoY earnings growth, led by strong traction in CRAMS/generic APIs and margin expansion. ALKEM/TRP delivered 114%/49% YoY earnings growth due to product mix change and controlled opex in the DF business. DRRD delivered 30% YoY earnings growth, led by superior performance in PSAI/EMs/EU segments and partly due to the low base of last year. Increased sales of oral solids in the US, addition of new products in the ARV segment and better Gross Margin (GM) led the 26% YoY earnings growth for ARBP.  Mid-caps – Performance of mid-caps was much stronger than large-caps. LAURUS witnessed exponential earnings growth led by the ARV segment. Earnings more than doubled for ALPM/IPCA. While increase in the US base business and cost savings in the DF segment boosted ALPM’s earnings, higher HCQS (hydroxychloroquine) sales drove IPCA’s earnings.  Interestingly, API sales grew 35% YoY/20% QoQ for companies under our coverage. This was largely led by (a) non-inclination to buy from Chinese suppliers, which led to better market share, (b) COVID led higher off-take of medicines, (c) re-stocking to some extent, and (d) favorable pricing.  Performance of DF remained muted due to COVID led restrictions on lower patient-doctor connect and decline in the number of elective surgeries in hospitals. The impact was especially intense for acute therapies v/s chronic therapies. However, the adverse impact of lower revenue growth was more than offset by strong margin expansion due to significant cost reduction (pertaining to travel costs of MRs, promotional expenses and lack of new launches).  Aggregate US sales declined 8.3% YoY in 1QFY21. Sharp reduction in Taro sales resulted in 34% YoY decline in US sales for SUNP. High base of product specific opportunity in 1QFY20 led the 24%/16% YoY decline for LPC/CIPLA. Ongoing regulatory issues at Indrad/Dahej and price erosion in the base business resulted in 6% YoY decline for TRP. On the other hand, strong execution led 61% YoY growth for ALPM, while new launches and inorganic addition resulted in 10% YoY growth for ARBP.  The loss in business from base portfolio was stabilized with price erosion of ~5-10%.  On an aggregate basis, number of ANDA filings increased sequentially – ~964 ANDAs are pending for approval in 1QFY21 (v/s 959 ANDAs at end-4QFY20). ARBP/LPC/CDH had maximum ANDAs pending for approval at end- 1QFY21.  As the lockdown eases, marketing spends in the DF segment is expected to gradually increase. However, the pandemic has led companies to re-evaluate their cost savings initiatives due to increased use of the digital medium. Thus, we expect structural improvement in profitability (v/s pre-COVID levels) in the DF segment. With inclination to buy from Chinese suppliers reducing, we expect better growth prospects for the API business. The reduced international travel is also expected to keep regulatory risk under check for companies, which have sites under compliance. Overall, outlook for the Pharma sector remains positive over the medium term.  Based on the strong earnings beat and promising outlook, we have upgraded our earnings estimates for 15 out of 17 companies under our coverage universe. The average upgrade stands at 17%/12% for FY21/FY22E. Maximum upgrade in earnings estimates were for large-caps like DIVIs/CIPLA (16-20%) and mid-caps like IPCA/ALKEM/ALPM (30-40%). Our earnings estimates have almost doubled for small-caps like LAURUS.  Additionally, we have upgraded DIVIs to Buy (35x 12M forward earnings to arrive at price target of INR3,350) as the company is well placed to benefit from its (a) API prospects, and (b) strong relationship with Innovators for

August 2020 26 Strategy

CRAMS (Contract Research and Manufacturing Services). Also, DIVIs is in the final stage of its large capex phase, which would cater to future growth over the next 2-3 years.

 Top picks: DIVIs, IPCA, LPC, ALKEM  Positive surprise: ALKM, CIPLA, DIVIs, IPCA, LAURUS, TRP, ALPM, AJP, STR  Negative surprise: BIOS, GLXO.

Guidance highlights:  SUNP has indicated that revenue of some specialty products would reach break-even in FY22E. There has been savings in branding/promotions due to the lockdown. However, the company expects expenses to return once normal operations resume.  DIVIs’ DC-SEZ/DCV-SEZ units were partially commercialized in Feb’20/Mar’20, but have not contributed to revenue during the quarter. The company has INR8b of capital work-in-progress (CWIP). It would be completing majority capex at Units 1 and 2, including validation and exhibit batches by FY21E.  DRRD has submitted its response on the CRL (Complete Response Letter) for g-Copaxone with the USFDA. DRRD has guided for ~INR10b capex for FY21 on account of upgrades/brown-field expansion.  CIPLA expects INR4-5b savings in opex on an annual basis in FY21, led by lower travel/conference expenses due to COVID-19. CIPLA has guided for a modest increase in R&D spends during 2HFY21 as clinical trials for two products would begin in the US.  ARBP intends to launch 50 ANDAs, driving YoY growth in the US market in FY21. ARBP would file 1 biosimilar in the EU market in FY21. The company intends to file 2 biosimilars annually over the next 2-3 years in both the US and EU markets. Its R&D spends are expected to remain at 5-5.5% of sales.  TRP has indicated it plans to launch 3/10 products in Brazil/India over 9MFY21. Compared to the 8-10% growth forecast (pre-COVID-19), the pharma industry in Brazil is estimated to grow at ~4%. TRP should fare better than the industry in Brazil.  BIOS’ plans to develop Insulin Aspart are on track. Also, BIOS-Mylan is working with the USFDA on a pathway for the interchangeability of Insulin Glargine.  LPC expects approval for g-Proair (Albuterol Sulphate) in Aug’20. It plans to launch the product in Sep’20 in the US market. LPC would also launch Enbrel biosimilar in Europe in 2QFY21. LPC has guided for 5-8% YoY growth in FY21 for the India market.  CDH’s potential injectable sales in the US could reach ~USD150-200m by FY23-24E on the back of 45/30 ANDAs filed/under development. The company has guided for net debt reduction of INR10b in FY21.  ALKEM intends to file 12-15 ANDAs and launch 10-12 ANDAs in the US during FY21. Annual R&D spends should stand at 6% of revenue.  IPCA expects overall sales to grow 18-19% YoY in FY21, with 10-12% growth in the DF business, 20% YoY increase in APIs, and better opportunities in export formulations. Gross margin should expand 100-150bp YoY in FY21 on lower raw material cost and product mix change. Overall, operational expenses should grow 5-6% YoY in the near term.  ALPM has guided for the US business to have a quarterly run-rate of USD70m and 15-20 ANDAs. Capex is expected at INR7b in FY21, comprising pre-operating expenses of INR3.5b across new facilities. Maintenance capex would stand at INR3b.  AJP has guided for flat FY21 revenue (v/s FY20). It plans to file 10-12 ANDAs and launch 6-7 ANDAs in FY21. The Ophthalmic block in Guwahati is expected to get commercialized in 2QFY21.  GNP has guided for EBITDA margin of 19-20% in FY21. The company expects some benefits of lower SG&A to continue throughout the year. The Ryaltris NDA approval for the US market can be expected in 2HCY21. R&D expenses are expected at ~11% of sales for FY21 (55% for innovation and 45% for generics).  GRAN has guided for 23% EBITDA margin for FY21. It has also guided for 30%/25% YoY PAT growth for FY21/FY22E. Capex is expected at INR3.5-4b for FY21.

August 2020 27 Strategy

 STR has guided for 6-8 ANDA launches in the US during FY21. Despite recall of Ranitidine, STR has guided for steady USD240m US sales for FY21 on the back of new launches and increased market share gains in existing products.

Exhibit 44: Covid-led lockdown impacted DF sales Exhibit 45: US sales continued declining in 1QFY21 as well Agg DF sales (INRb) YoY growth (%) US sales (USDb) YoY growth (%) 28.5 17.4 19.8 20.6 20.6 9.9 15.0 2 6.4 4.3 10.8 10.8 7.5 8.4 10.1 (1) (0.3) (4.1) (12) (12) (8.6) -0.4 -0.5 -2.6 (16) -9.9 1.6 1.6 1.6 1.6 1.5 1.6 1.7 1.9 1.8 1.7 1.8 1.8 1.7 83 111 103 96 106 110 111 95 115 127 122 115 112 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 1QFY18 2QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 3QFY18 4QFY18

Exhibit 46: Controlled costs boosted YoY EBITDA growth…. Exhibit 47: …as well as YoY PAT growth

YoY EBITDA growth (%) YoY PAT growth (%)

51.3

41.3

36.7

48.2 30.4

22.3

20.2

18.7

24.7 23.2 14.6

13.5 10.5 10.3

9.1 8.8 11.6

6.0

9.3 3.5

7.0 6.6 0.8

4.8 4.8

4.7

3.1

1.2

(8.7)

(9.8) (10.6)

(15.1)

9.1

10.6 (21.3) (20.0)

3.7

(35.1)

(17.6) (48.4)

2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21

METALS: Weak prices and demand dent profitability  Ferrous: Weak domestic demand and lower pricing, as a result of the lockdown situation in the country, impacted the profitability of steel companies severely. Tata Steel reported its lowest EBITDA in a decade, and JSW Steel posted the second lowest EBITDA in eight years. JSPL, however, bucked the industry trend on the back of volume growth. For our steel coverage universe (excl. SAIL), EBITDA declined 58% QoQ to INR41.1b (-64% YoY) and PAT stood in the red with adj. loss of INR48.9b v/s profit of INR17.1b posted in 1QFY20 (INR26.4b in 4QFY20).  Exports help partly offset weak domestic demand: Domestic steel demand declined ~57% YoY in 1QFY21 on account of nationwide lockdown; however, companies resorted to higher exports (at nearly 50% of volumes) to combat weak domestic demand. As a result, volumes of steel companies (incl. SAIL) under our coverage were down 24% YoY (26% QoQ) in 1QFY21. JSP, however, was an exception with volumes growing 4% YoY.  Margins decline on lower prices and negative operating leverage: EBITDA/t for JSW/Tata Steel declined 50%/55% YoY to INR5,122/5,940 per ton, weighed by: (a) lower realization (down ~10% QoQ) due to an adverse product mix (higher exports and semi-finished sales) and (b) negative operating leverage increasing per ton cost. JSP, however, managed to record 2% expansion in EBITDA/t to INR11,525/t, supported by the usage of free-of- cost Sarda iron ore inventory. Tata Steel Europe reported EBITDA loss of USD44/t (v/s profit of USD4/t in the previous quarter) due to unfavorable spreads and lower volumes.  Non-ferrous – Lower LME impacts profitability: NSRs for aluminum companies (Hindalco and HZ) declined in line with lower LME. Aluminum/zinc prices declined 12%/8% QoQ and 17%/29% YoY. Volumes, though, were not impacted much as companies exported nearly ~80% of their volumes. Hindalco’s aluminum volumes declined 5% YoY to 303kt, and HZ’s refined metal volumes declined 3% YoY to 208kt. However, CoP benefited from lower

August 2020 28 Strategy

input commodity prices. As a result, Hindalco’s India EBITDA declined 34% QoQ to INR8.9b, and HZ’s EBITDA fell 20% QoQ to INR15.7b.

Top picks  Hindalco: Given HNDL's low-cost (top quartile globally) integrated aluminum operations in India, we believe it is well-placed to benefit from rising LME. The outlook for Novelis is positive, led by resilience in the Beverage Can business and global demand recovery in Auto, a high-margin business. With ~72% EBITDA contribution now coming from the non-LME business (Novelis + Aleris), we see relatively higher stability in HNDL's earnings. We expect net debt to reduce to INR502b in FY22 from INR620b at Jun'20-end on the back of consistent FCF generation and lower capex.  JSPL: We expect JSP to achieve ~10% EBITDA CAGR to INR95.6b over FY20–22E, driven by an expected 8% volume CAGR. We expect JSP to reduce its net debt by INR83b (INR81/share) to INR296b (incl. acceptances) over FY20–22E through strong FCF generation, led by higher EBITDA and lower capex. The Oman divestment deal, if approved, with equity consideration of ~USD50m (net of inter-company loans of USD200m), would lead to an additional net debt reduction of ~INR60b (INR59/sh). We have not factored the deal in our estimates. The divestment of the Oman business would lead to improved focus on domestic operations.  Positive surprises: JSP, HNDL  Negative surprises: TATA

Guidance highlights:  JSW Steel: (1) JSTL has reiterated its FY21 production and sales guidance of 16.0mt and 15.0mt, respectively. (2) JSTL informed that there were moderate price hikes in Jul’20 and guided for another round of price hikes in Aug. It further expects to benefit from lower coking coal prices to the extent of USD20–25/t of coking coal. (3) The company operationalized its four mines in Odisha in Jul’20 post the finalization of contracts with MDOs and transporters. It guides for iron ore production of ~17mt from these mines in FY21.  Tata Steel: (1) Jun’20 sales volumes for its India operations stood at 115% of avg. monthly FY20 volumes (domestic sales stood at 75% levels). (2) Management guided for realization improvement in excess of INR3,000/t QoQ and capacity utilization of >95% for 2QFY21. (3) Management guided for 2QFY21 EBITDA loss in Europe similar to 1QFY21 levels (i.e. USD44/t).  JSPL: (1) Company guided for production volumes of 1.8mt in 2QFY21 and ~7.4mt in FY21. (2) With lower exports and higher value-added product sales, the company expects Steel NSR to improve in 2QFY21. (3) The company expects to repay debt of INR55b in FY21 through cash flow generation. The Oman divestment deal, if approved, would lead to additional debt reduction of INR60b. The company has scheduled the INR50b repayment over the balance 9MFY21.  Hindalco: (1) Aluminum integrated CoP declined 6% QoQ and is guided to remain flattish in 2QFY21. (2) The Utkal alumina expansion of 500kt should get commissioned in 4QFY21. (3) The company has no repayment scheduled for the next two years for the India business. Apart from bridge loan re-financing, the next repayment of USD1.7b in Novelis is scheduled in FY23. (4) Novelis guided for EBITDA/t of USD450–475/t on a sustainable basis. Novelis’ capacity acquisition of Aleris stands at 4.0mtpa.

August 2020 29 Strategy

Exhibit 48: Metals aggregate EBITDA* declines 47% QoQ/52% YoY in 1QFY21 225

208 Total 204 203 200 187 179 173 158 155

147 Hindalco 135 134 134

120 117 98 92 92 JSP 83 63 (INR b) JSW Steel Aggregate EBITDA Tata Steel

HZ 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21

Source: Company, MOSL; * for reported companies

Exhibit 49: Steel EBITDA (INR/ton) improves Tata Steel - India JSW Steel JSP Weighted Average 20,000

15,000

10,000

5,000 6,631 9,253 7,797 9,442 9,000 9,799 9,931 6,472 9,437 5,998 8,398 8,703 5,940 5,122 10,786 10,959 14,025 15,872 11,081 12,871 17,077 12,611 13,824 18,882 12,101 11,344 15,302 12,060 12,334 13,776 10,119 13,159 10,219 11,245 11,703 11,020 12,538 11,746 11,525 0

1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 Source: MOFSL, Company

Exhibit 50: Steel sales declined 26% QoQ Exhibit 51: Steel realization declined 10% QoQ in 1QFY21 Tata Steel SAIL JSW Steel JSP Total steel Average Tata Steel JSW Steel JSP 14.6 14.6 13.0 55 12.012.2 12.0 12.412.2 12.8 10.9 10.811.5 11.4 11.3 9.1 10.1 9.4 45 4.3 4.0 4.0 3.7 3.8 3.6 4.0 3.9 4.0 4.2 3.8 3.7 3.8 3.6 35 3.5 4.1 4.1 3.3 3.5 3.1 3.7 2.8 3.3 3.4 3.5 3.8 3.7 3.3 3.2 3.2 2.8 3.6 3.0 2.2 25 4.7 4.9 2.6 3.0 3.2 2.8 3.1 3.3 3.0 3.1 4.3 3.9 4.0 4.1 4.0 2.9 2.2 15 Realization (000' (000' INR/T) Realization 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 1QFY15 3QFY15 1QFY16 3QFY16 1QFY17 3QFY17 1QFY18 3QFY18 1QFY19 3QFY19 1QFY20 3QFY20 1QFY21 Source: Company, MOFSL Source: Company, MOFSL

Exhibit 52: Hindalco Aluminum sales (kt) declined 4% QoQ Exhibit 53: Hindalco Copper sales (kt) declined 33% QoQ kt 300 VEDL Balco Hindalco Nalco VEDL Hindalco kt 1,000 225 750 150 500

250 75

0 0 1QFY14 3QFY14 1QFY15 3QFY15 1QFY16 3QFY16 1QFY17 3QFY17 1QFY18 3QFY18 1QFY19 3QFY19 1QFY20 3QFY20 1QFY21 1QFY13 3QFY13 1QFY14 3QFY14 1QFY15 3QFY15 1QFY16 3QFY16 1QFY17 3QFY17 1QFY18 3QFY18 1QFY19 3QFY19 1QFY20 3QFY20 1QFY21 Source: MOFSL, Company; *VEDL and NALCO yet to be announced Source: MOFSL, Company, *VEDL and NALCO yet to be announced

August 2020 30 Strategy

Oil and Gas: Volume recovery – 80-85% for auto fuels, ~95% for gas transmission, ~100% for PNG Industrials; CNG remains a laggard  Aggregates*: Revenue decline in line with est., mainly driven by better-than-expected marketing margins of the OMCs. However, ex-OMCs, revenue was below est. EBITDA declined 13.2% YoY (below our est.), primarily due to earnings miss by RIL, GAIL and HPCL. PBT for our universe was down 28.7% YoY. PAT for our coverage universe was down 11.1% YoY (in-line). Excl. OMCs, PAT declined 26.8% YoY (25.6% miss v/s our est.). *ONGC, IGL and OINL are yet to report 1QFY21 earnings.  Better-than-expected marketing margins…: Implied gross marketing margins were better than expectations and higher sequentially for the OMCs at INR8.2-8.9/bbl (v/s est. ~INR7.5/bbl). This was despite vulnerabilities in terms of (a) rapid increase in international crude prices from a trough, (b) no domestic retail price hike for ~80 days during the quarter, and (c) increase in VAT by some states, which resulted in retail prices touching all-time highs. Marketing volumes were lower than est. by 6-8% due to extension/imposition of lockdowns and onset of monsoons (which generally affects Diesel demand every year).  …offset poor refining margins: Singapore GRM continued its decline and stood at -USD0.9/bbl in the quarter – a record low in the last two decades. The decline was primarily due to huge demand destruction in the travel space, tanking Gasoil, Gasoline and ATF cracks. While these three cracks were impacted the most during the first half of the quarter, they recovered a bit as lockdowns started to ease globally.  Indian refineries clocked a mix of inventory G/L according to their varied inventory cycle and inventories in stock. IOCL reported inventory loss (INR32b), while BPCL (INR5.6b) and HPCL (INR6.3b) displayed inventory gains (in line with our est. for the quarter). Also, GRMs were weaker in 1QFY21 as discounts from Middle Eastern suppliers (enjoyed in Mar-May’20) have come off.  Thus, the OMCs’ clocked core GRMs of -USD0.9-4.4/bbl in 1QFY21, with inventory loss of -USD6.4-0.9/bbl per barrel. MRPL’s core GRM stood at USD0.23/bbl for 1QFY21, with inventory loss for the quarter at USD1.72/bbl.  RIL (O2C) delivered EBITDA miss: RIL reported GRM of USD6.3/bbl, which is the lowest since 2QFY10, primarily due to shrinking of product cracks and Lt-Hv crude differential. The premium over SG GRM stood at USD7.2/bbl as RIL used flexibility in its refining configuration to manage yields. Standalone EBITDA was down 48% YoY to INR71.3b (v/s est. -38%) due to lower GRMs (at USD6.3/bbl) and petchem margins (implied EBITDA/mt declined 55% YoY to USD64). The company has recognized exceptional gain of INR44.2b (standalone) related to its deal with BP for the petro-retail business. RIL has recognized deferred tax credit with reported PAT at INR97.5b. Adj. PAT (for exceptional items) stood at INR48.6b (v/s est. -19% and -46% YoY).  CGDs report better volumes*: As economic activities resumed in the country with gradual lifting of the lockdown in May’20, industrial demand led the recovery (GUJGA’s total volumes recovered to ~45% YoY). However, CNG and PNG commercial demand lagged (MAHGL’s total volumes recovered to ~40% YoY) in 1QFY21. EBITDA/scm for GUJGA was better QoQ at INR4.9. MAHGL’s margins shrank QoQ to INR7.9 due to impact from lower prices of alternate fuels. IGL is yet to report 1QFY21 earnings.  Ratings and earnings change: We have not made any rating changes during the quarter. We have raised GUJGA’s EPS by 6.4%/2.7% for FY21/22E, taking into account quick recovery in volumes for the company. For GAIL, we have revised down EPS by 8.3%/unchanged for FY21/22E, factoring in the huge miss during the quarter. We have also revised down RIL’s EPS by 8.2%/4.8% for FY21/22E on account of weakness in refining and petchem for FY21. HPCL’s EPS was cut by 6.5%/1% for FY21/22E, reflecting the huge miss during 1QFY21.  Top picks: RIL, IOCL, Petronet and GUJGA  RIL: Post the recent fund raising initiatives, RIL would become an almost net debt free company, making the stock more attractive. Stake sale in Jio Platforms to global tech giants like Facebook opens up a plethora of opportunities for both the digital as well as the retail segments.  Among the OMCs, we prefer IOCL as the company is expected to report ~17% cumulative FCF yield in FY21/22E, despite having an annual capex of ~INR260b (the highest amongst OMCs). Additionally, dividend yield appears attractive at 8-10%. We also expect the discount gap between IOCL (with a more diversified earnings mix of

August 2020 31 Strategy

~35% refining and ~35% marketing) and its peers to shrink (>55-60% earnings currently comes from marketing segment), as refining margins improve off the trough and marketing margins normalize.  Petronet remains our top pick as it offers a structural story amid the huge potential gas demand in India, the lack of domestic gas availability, the improving pipeline infrastructure and the increasing emphasis on usage of cleaner fuel by industries. Small Scale LNG (ssLNG) has potential of 8-9mmtpa of LNG for trucks over the next 8- 10 years and the company is already planning on setting up ~50 ssLNG stations over the next 2-3 years.  We maintain buy on GUJGA as it has a huge advantage of volume boost from the NGT’s stringent directives, which should drive ~10% volume CAGR over the medium term on the highest volume base amongst its peers.  Positive surprises: IOC, Petronet, GUJGA, MAHGL, BPCL, GSPL  Negative surprises: RIL, HPCL, GAIL Guidance highlights:  RIL expects global demand recovery to remain capped in the near term with concerns over high inventory and further delayed recovery in Jet fuel demand. Also, China is likely to export more with an increase in its refinery throughput, deepening the supply glut and enhancing the pressure on product margins. Huge new petrochem capacity additions coming from China and the US are likely to keep margins under pressure. However, improving demand for PE and PP across the essential sector should provide some support to demand, and consequently, to margins. In the current challenging operating environment, RIL’s ability to optimize between feedstock and sales mix provides an edge in improving its performance. RIL is further planning to streamline its O2C integration business and focus on expanding its fuel marketing business.  The OMCs expect some more time before 100% demand is retained, with further pickup in demand from the industrial and commercial space. Currently in Aug’20, total sales volumes have reached ~90% of pre-COVID sales; MS and HSD are 87% and 82% of pre-COVID levels, respectively. In the near term, companies expect demand for MS at 85-90% and HSD at 80-85% of normal levels. LPG demand, though, should remain strong. The OMCs have reiterated that marketing margins and GRM trends over the longer term would stand at normalized levels only. IOCL continues with its strong capex of INR260b annually, while HPCL has guided for INR115b capex for FY21. BPCL has revised down its capex for FY21 to ~INR80b (from INR120b earlier).  GAIL is currently operating at ~95% of FY20 (transmission at 109.5mmscmd and trading at 87.2mmscmd) volumes and the company expects it to normalize to pre-COVID levels in another two months. Also, demand from fertilizer/power is stabilizing again. However, some delay is expected in the start-up of plants (Matix Fertilizer, Ramagundum Fertilizer and Mangalore Fertilizer), owing to COVID led reasons. From Jun’21, the entire volume would be sold in India with commissioning of the 4 fertilizer plants (on JHDBPL) and should touch full capacity of 16mmscmd as refineries are connected (in 2021 with Phase-II). This together would eventually de- risk the US HH contracts and make them profitable in India.  Petronet has highlighted that post lifting of the lockdown, RLNG demand has recovered gradually. Since the first week of Jun’20, the (a) Dahej terminal is operating at 100% capacity of 17.5MMTPA (63mmscmd) (v/s Jan-Feb’20 average of 92% capacity of ~58mmscmd), and (b) Kochi terminal is operating at 20% capacity of ~3.57mmscmd. Various power plants are switching off coal due to the current lower spot gas price environment, resulting in higher gas off-take and imports. Negotiations are on with Qatar Gas over LNG pricing. PLNG has also indicated that the MOU with Tellurian may get extended with a final decision expected in FY21. Kochi LNG terminal is also expected to see better utilization once the Kochi-Mangalore pipeline is commissioned fully.  GUJGA mentioned that current sales volume stands at 9.5mmscmd (v/s 9.4mmscmd of average sales in FY20), aided by strong recovery post the lockdown. Apart from probable benefits of NGT’s stringent norms to curb industrial pollution, the company also plans to set up ~60 CNG stations in FY21 (out of 100 planned), which would increase the reach of CNG in Gujarat and encourage conversion.

August 2020 32 Strategy

Exhibit 54: Implied gross marketing margins (INR/lit) 9.4 8.9 IOCL BPCL HPCL 8.6 8.2 6.76.5 6.4 5.7 5.2 5.1 5.3 5.14.6 4.94.6 4.9 5.0 4.84.8 4.5 4.14.3 4.4 4.4 4.4 4.5 4.1 4.4 3.8 4.03.8 3.5 3.8 3.7 3.13.2 3.1 2.9 2.0

1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21E

Exhibit 55: Core refining margins (USD/bbl)

IOCL Core GRM BPCL Core GRM HPCL Core GRM RIL Sg GRM (USD/bbl)

8.3 7.3 7.0 6.4 6.0 6.1 6.5 4.2 3.2 3.5

1.6 11.8 12.0 11.6 11.0 10.5 10.0 7.7 6.9 8.8 7.0 6.5 5.6 6.1 4.9 6.1 6.1 5.6 6.6 3.3 4.2 3.7 3.5 3.3 2.7 9.5 9.2 6.0 8.8 1.4 2.6 2.1 8.2 3.6 3.7 3.3 8.1 3.0 3.8 2.6 9.4 2.0 2.2 1.5 9.2 8.2 7.5 9.6 8.9 4.4 1.9 6.3

1.2 (0.9) 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21E(0.9)

Exhibit 56: Sales volume of CGDs (mmscmd)

mmscmd GUJGA IGL MAHGL

6.1 4.9 2.6 5.7 5.2 2.7 6.3 5.3 2.7 6.8 5.4 2.8 6.4 5.5 2.9 6.7 5.9 3.0 6.6 5.9 3.0 6.5 6.3 3.0 9.2 6.3 3.0 9.3 6.6 3.0 9.3 6.7 3.1 9.9 6.2 2.8 4.1 1.1

1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21

Exhibit 57: EBITDA/scm trend for CGDs (INR) EBITDA/scm GUJGA IGL MAHGL

4.8 6.2 8.7 3.8 5.9 8.1 3.5 5.4 8.0 3.7 5.7 7.0 4.2 5.8 8.1 2.6 5.7 8.1 5.3 5.8 8.8 4.3 5.9 7.9 5.6 6.3 4.3 6.5 9.9 4.3 6.4 9.2 4.7 6.6 9.6 4.9 7.9 10.3

1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21

August 2020 33 Strategy

RETAIL: Store closures lead to losses  COVID-19 impact: Revenues of apparel retailers’ were hit hard on account of the COVID-19 crisis as retail stores remained closed for a majority part of 1QFY21. The gradual reopening of stores from Jun’20 was accompanied by reduced operating hours and much lower footfalls at stores. However, the conversion rate was high as only serious customers came to the stores. Also, retailers are seeing trends change in customer’s apparel preference – demand is rising for categories like masks, casual-wear, and comfort home-wear. While the average selling price (ASP) has reduced, the basket size has increased due to reduced frequency of store visits by customers. Grocery retailer DMART witnessed limited impact due to the government permitting sale of essentials and groceries. However, margins were impacted sharply as general merchandise and apparel sections were shut during the lockdown. DMART’s revenue declined 33%, whereas ABFRL/SHOP/TRENT/VMART witnessed revenue decline of 85%/94%/87%/83% YoY. Apparel retailers have refrained from providing any sharp discounts on their inventories so far; however in Aug’20, some level of EOSS-linked discounts were seen.  Sharp cost reduction and rental savings: Retailers have taken up sharp cost rationalization, which has reduced their overall EBITDA losses. This includes hard rental negotiation with landlords for waivers during the shutdown period and lower rentals for the next 3-6 months of FY21 as sales are expected to remain impacted in the near future. In 1QFY21, ABFRL/SHOP/TRENT saw rent expense savings of INR1,600m/INR740m/INR359m. In VMART’s case, rent expense savings stood at INR25m as MOUs with landlords are not signed yet. VMART, however, expects full-year FY21 rent savings of INR180m. ABFRL/SHOP/TRENT/VMART’s operating expenses have reduced sharply by 49%/65%/40%/75% YoY, while employee expenses have declined 8%/10%/18%/50% YoY.  EBITDA takes a hit: EBITDA losses stood at INR4.7b for our retail coverage (v/s INR9.7b EBITDA in 1QFY20). DMART is the only company in our Retail coverage universe to report EBITDA profits of INR1.1b (-81% YoY), while ABFRL/SHOP/TRENT/VMART posted EBITDA loss of INR3.5b/INR1b/INR1.2b/INR0.1b.  Stores reopening: At the time of reporting results, retailers had opened 75-90% of their stores. However, threats still remain in the form of the (a) stringent lockdowns returning, and (b) restricted store openings in regions that are emerging as the new COVID-19 hotspots in the country. Subsequently, retailers have increased their focus on the online channel and have seen strong customer response (but on very low single-digit revenue contribution). Store additions halted during 1QFY21 and only stores in the final stages of completion were opened. DMART has added 2 stores while Westside/Zudio added 1/4 stores in 1QFY21. Store addition in 2QFY21 is expected to remain muted too.  PAT supported by DMART: Aggregate net losses of our coverage companies stood at INR6.4b, with only DMART reporting profit of INR0.4b. ABFRL/SHOP/TRENT/VMART reported net losses of INR4b/INR1.1b/INR1.4b/INR0.3b.  Top picks: ABFRL, VMART  Positive surprises: VMART Guidance highlights:  ABFRL: (1) Gross margin declined due to fixed manufacturing cost impact on low production and should revert to previous levels as business returns to normal. (2) Net debt should reduce from the peak of INR32.5b in 1QFY21 to INR20b by end-FY21, led by INR7.5b proceeds from a rights issue and INR5b from working capital.  SHOP: (1) Demand should remain muted in 2QFY21. The festive season should lend support in 3QFY21. Revenues are expected to remain flat or increase marginally YoY in 4QFY21. (2) SHOP should reach break-even on quarterly basis with revenue of INR7-8b/INR9-10b in FY21/FY22E. (3) SHOP is targeting annual savings of INR4.5b in FY21, of which, INR2-2.5b should be sustainable.  VMART: (1) It has utilized only INR130m of its WC limit (INR2b still available). Liquidity should remain strong in FY21 with the company remaining debt-free for the remainder of the fiscal. (2) Online revenues currently form less than 1% of total revenues. The company is focused on growing the online channel further (target to reach 2- 3% of total revenue).

August 2020 34 Strategy

Exhibit 58: Nationwide lockdown leads to revenue decline of 57%… Exhibit 59: …along with decline in gross profits Aggregate revenue (INR b, LHS) YoY growth (%. RHS) Aggregate Gross Profit (INR b, LHS) 150 40 Aggregate gross margin (%) 45 30 100 0 30 25

50 -40 15 20

0 -80 0 15 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 Source: Company, MOSL Source: Company, MOSL

Exhibit 60: Sector reported EBITDA loss due to lack of operating leverage Exhibit 61: Aggregate PAT loss at INR6.4b Aggregate EBITDA (INR b, LHS) Aggregate EBITDA margin (%, RHS) Aggregate PAT (INR b, LHS) YoY growth (%, RHS) 20 15 8 500

8 4 250 10 0 0 0 0 -8 -4 -250

-10 -15 -8 -500 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 Source: Company, MOSL Source: Company, MOSL

Exhibit 62: Retail coverage KPI snapshot 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21E

Total Store count

Madura EBO's 2049 2103 2156 2190 2229 2288 2369 2406 2506 2544 2656 2699 2662 Pantaloons 213 243 256 275 282 288 302 308 314 331 343 342 342 DMART 132 136 141 155 157 160 164 176 184 189 196 214 216 Shoppers Stop 80 80 82 83 83 83 83 83 83 84 89 84 84 Westside 0 0 0 125 130 135 142 150 155 161 167 165 166 V-Mart 149 157 167 171 179 190 200 214 227 239 257 266 266 Store adds

Madura EBO's 54 53 34 39 59 81 37 100 38 112 43 -37

Pantaloons 30 13 19 7 6 14 6 6 17 12 -1 0

DMART 4 5 14 2 3 4 12 8 5 7 18 2

Shoppers Stop 0 2 1 0 0 0 0 0 1 5 -5 0

Westside 0 0 125 5 5 7 8 5 6 6 -2 1

V-Mart 8 10 4 8 11 10 14 13 12 18 9 0

Total Store Adds 96 83 197 61 84 116 77 132 79 160 62 -34

Source: Company, MOFSL

TELECOM: Limited impact of COVID-19; Capex remains muted  Telecom sector faces limited impact of COVID-19: While most sectors were reeling under the pressure of the nationwide lockdown led by the COVID-19 pandemic, the Telecom sector was up and running with limited impact on earnings. Operators’ witnessed marginal revenue impact due to free extension of plan validity during

August 2020 35 Strategy

Apr’20, SIM consolidation and loss of revenue from feature phone subscribers because of the economic impact of the pandemic. Furthermore, the industry saw overall subscriber decline – VIL/Bharti lost 11.3m/3.8m while RJio added 10.8m subscribers. The work-from-home (WFH) policy of several organizations led to surge in data usage, however, site addition and capex deployment remains muted due to lockdown restrictions.  RJio enjoys tariff hike benefits; incumbents absorbed benefits in 4QFY20: While incumbents absorbed full benefit of the price hike in 4QFY20, RJio saw benefit of the price hike in 1QFY21, which led to its ARPU improving 7.4% to INR140. Despite no price hike benefit, Bharti’s ARPU improved 2% to INR157, owing to the churn in low ARPU feature phone subscribers and 1.5% increase in 4G subscribers. VIL saw erosion of the price hike benefit (taken in Dec’19) with its ARPU declining 6% to INR114 along with significant subscriber churn. Overall, Bharti’s revenue/EBITDA increased 0.9%/2.4% QoQ to INR239.4b/104.1b and RJio’s revenue/EBITDA increased 11.6%/13.4% QoQ to INR165.6b/INR70.1b. VIL’s revenue/EBITDA declined 9.3%/6.4% QoQ to INR106.6b/INR41b.  Restricted costs lead to margin improvement: To counter the earnings impact of the lockdown, telcos’ focused on reducing expenses, especially SG&A expense. Further, larger adoption of digital recharge also reduced telcos’ commissions. These factors led to improvement in EBITDA margin with Bharti/VIL/RJio’s margin standing at 43.5%/38.4%/42.3% (v/s 42.9%/37.3%/41.6% in 4QFY20).  AGR liability woes: Further to its previous verdict on the total outstanding amount of AGR dues, the Supreme Court (SC) made it clear that the amount calculated by the DoT is final with no scope for self-assessment or reassessment. Pursuant to this order, Bharti/VIL recognized incremental provision of INR107b/INR194b to account for the remaining AGR dues.  VIL continues losing subscribers: VIL continued to witness subscriber churn due to its weak network capability and relentless speculation around business continuity given the context of AGR case. In 1QFY21, VIL lost 11m/21m/1m net/active/4G subscribers, while Bharti lost 4m net subscribers and added 2m 4G subscribers. On the other hand, RJio continued its healthy momentum with 11m subscriber adds.  Burgeoning debt: Debt remains a key concern for Bharti/VIL and the AGR penalty has added to their woes. Bharti’s net debt stood at INR859b (would increase to over INR1t after including the remaining AGR dues of INR260b). VIL’s net debt of over INR1t and limited cash to service operations remains a key concern. RJio has reduced its net debt via stake sale of >30%.  Top picks: Bharti Airtel  Positive surprise: Bharti Airtel  Negative surprise: Bharti Infratel Guidance highlights:  Bharti Airtel: (1) Bharti’s ARPU should touch INR200 in the short term and INR300 in the long term. (2) Bharti is looking to acquire quality customers that could provide additional revenue opportunity. (3) 80% of the total debt pertains to deferred spectrum and lease liability. Its market debt is limited, and thus, could reduce from improving FCF and stake sale.  Vodafone Idea: (1) Being conscious of its liquidity situation, VIL has restricted its investments in 16 priority circles and profitable districts of the remaining 6 circles. (2) ARPU is unreasonably low. To generate healthy returns, it should reach a range of INR230-250. (3) VIL has already repaid INR29.4b out of a total debt of INR36.3b (which has to be repaid by Mar’21).  Bharti Infratel: (1) The WFH model could open up demand for new technologies such as 5G and BHIN is well- placed to exploit the opportunity. (2) Energy margin should reduce to 0-3% from 3-5%.  Tata Communications: (1) TCOM witnessed healthy addition in its order book, which is equally growing in India/international markets and across business verticals. This should step up data revenue growth. (2) TCOM has no immediate plans to monetize its land parcel, but would look at other ways to deleverage.

August 2020 36 Strategy

Exhibit 63: Operator-wise active subscriber market share (%) Exhibit 64: Operator-wise ARPU (INR) RJio Bharti Vodafone-Idea Other players 200 Bharti (India) Idea RJio 45.0%

35.0% 160

25.0% 120 15.0%

5.0% 80 1Q 2Q 3Q 4Q 1Q 2Q* 3Q* 4Q* 1Q* 2Q* 3Q* 4Q* 1Q* Jul-18 Jul-19 Jan-18 Jan-19 Jan-20 Sep-18 Sep-19 Nov-18 Nov-19 Mar-18 Mar-19 Mar-20 May-18 May-19 FY18 FY19 FY20 FY21

*Vodafone Idea merged co performance

Exhibit 65: Wireless KPI comparison FY18 FY19 FY20 FY21 YoY QoQ

1Q 2Q 3Q 4Q 1Q 2Q* 3Q* 4Q* 1Q* 2Q* 3Q* 4Q* 1Q* (%) (%) EOP Wireless SUBS (m)

Bharti (India) 281 282 290 304 345 333 284 283 277 279 283 284 280 1.1 -1.3 Idea 189 182 189 195 188 422 387 334 320 311 304 291 280 -12.6 -3.9 RJio 123 139 160 187 215 252 280 307 331 355 370 388 398 20.2 2.8 Avg. Wireless Subs (m)

Bharti (India) 277 281 286 297 324 339 308 283 280 278 281 283 282 0.7 -0.6 Idea 189 186 185 192 191 305 405 361 327 316 308 298 285 -12.7 -4.1 RJio 116 131 149 173 201 234 266 293 319 343 363 379 393 23.2 3.7 ARPU (INR/month)

Bharti (India) 154 145 123 116 105 100 104 123 129 128 135 154 157 21.7 1.9 Idea 141 132 114 105 92 88 89 104 108 107 109 121 114 5.6 -5.8 RJio 156 154 137 135 132 130 126 122 128 128 131 140 15.0 7.4

MOU/Sub (min)

Bharti (India) 507 518 575 670 701 694 726 858 888 848 898 965 994 11.9 3.0 Idea 441 459 509 577 609 568 580 662 690 669 674 688 678 -1.7 -1.5 RJio 625 694 716 744 761 794 823 821 789 760 771 755 -8.1 -2.2

Wireless traffic (B min)

Bharti (India) 422 437 495 593 684 693 703 731 737 717 759 822 820 11.3 -0.2 Idea 251 255 283 330 350 731 712 703 676 631 624 616 579 -14.4 -6.0 RJio 246 311 372 449 534 634 724 786 813 826 876 889 13.2 1.5

Data usage/Sub (Mb)

Bharti (India) 2,611 4,087 5,349 6,585 7,864 9,221 10,528 11,048 11,930 13,116 13,928 14,972 16,655 39.6 11.2 Idea 2,204 3,805 4,742 6,065 7,309 5,740 6,324 6,716 7,417 8,209 8,951 9,687 10,956 47.7 13.1 RJio 9,620 9,600 9,700 10,649 10,992 10,819 10,861 11,390 11,673 11,105 11,300 12,047 5.8 6.6

Data traffic (B mb)

Bharti (India) 472 784 1,106 1,540 2,151 2,660 3,217 3,705 4,192 4,829 5,547 6,453 7,240 72.7 12.2 Idea 253 439 571 818 1,018 2,426 2,705 2,947 3,222 3,492 3,790 4,090 4,523 40.4 10.6

RJio 3,780 4,301 5,044 6,420 7,710 8,640 9,560 10,900 12,020 12,080 12,840 14,200 30.3 10.6

*Represents Vodafone Idea merged co performance Source: Company, MOFSL

TECHNOLOGY: Margin resiliency a surprise; Outlook optimistic  Aggregate performance: 1QFY21 aggregate sales declined 3.7% YoY to USD15b. The decline was broad-based as the key markets of the US/Europe declined ~4%/3% YoY (USD) each (v/s ~+5% YoY in 4QFY20). EBIT margin for Tier I/II companies was largely stable (-10bp/+10bp QoQ) at 20.8%/13.7%, which is a key positive. Aggregate EBIT / PAT grew ~9%/1% YoY (v/s est. 5%/0% YoY).  Revenue impact largely in line: Supply side issues reduced significantly and contributed ~10-30% of the COVID- 19 impact in 1QFY21 while the majority was driven by sudden demand disruption. As clients reprioritized their IT spends toward business resiliency and deferred discretionary spends, it resulted in overall revenue declining 2%- 7% QoQ for Tier I companies, (largely in line, barring INFO, which beat est.). Similarly, in Tier II companies, Persistent (industry leading growth) and Hexaware beat est. while the rest reported revenue decline (in-line).

August 2020 37 Strategy

 Strong margin resiliency: INFO/ Wipro/LTI / Mindtree/Hexaware/Persistent have shown sequential expansion (70-150bp QoQ) in EBIT margin during 1QFY21, beating consensus est., which was a positive surprise. Wage hike deferral, tight control on discretionary spends, reduced travel costs, absence of one-offs (PM Cares fund contribution), and currency depreciation were the tailwinds for margin. On the other hand, impact of revenue drop and volume impact were the offsetting factors.  Deal wins healthy for most players: TCS (USD 6.9b, 20% YoY) and INFO (USD 1.7b) reported healthy deal wins in 1QFY21. Wipro and HCL also indicated good bookings; however, deal wins remained soft for TechM. Large deal wins continue to happen though deal cycles have elongated slightly. Quality players have gained market share as well in some vendor consolidation opportunities. Firms have highlighted that the deal pipeline is robust (for HCL, its up 40% QoQ), which provides positive outlook toward demand stabilization.  Cash Conversion improvement: Companies remained focused on collections and DSO was not impacted materially. Margin expansion, healthy collections coupled with limited capex helped in delivering healthy cash conversion – FCF/PAT of 114% (TCS) to 246% (TechM) in Tier I companies.  Divergence in Global banks’ tech spend growth/IT BFSI performance temporary: As highlighted in our recent note, even as aggregate tech spends at the top-8 global banks grew 3% YoY, aggregate revenue of the top-7 IT companies (Tier I/ ACN/ CTSH) from BFSI declined 4% YoY (USD). This one-off divergence in the past couple of years can be largely attributed to (a) weakness in Europe, (b) temporary price cuts, (c) spend in other areas where IT services firms do not participate, and (d) delayed approval for work from home (WFH) in few projects. We expect this divergence to be temporary as price cuts/certain one-off expenses by banks should go away as global banks’ commentary indicates stable digital spends in the near term.  Optimistic outlook, expect recovery going forward: Demand stabilization and waning of price discounts should aid revenue performance going forward. On the demand front, all companies expect an improvement from mid- 2QFY21 and are confident of defending margins. Energy, Manufacturing, Aerospace and Automotive are expected to take slightly longer to recover while BFSI, Telecom and CPG should stabilize early. Technology, Healthcare and LifeSciences have remained largely resilient. Clients’ interest in areas like Cloud, Virtualization, Digital, etc. has also accelerated as a result of the pandemic.  Top Picks: Despite near-term uncertainties due to COVID-19 and the US Presidential elections, we continue to like INFO/HCLT among Tier I and LTI/Mindtree/ Persistent among Tier II. This is due to their robust business models, high return ratios, strong management teams and reasonable valuations. As these companies have the legacy of overcoming multiple business challenges and technology change cycles in the past, we believe they will be able to navigate challenges posed by the COVID-19 pandemic and emerge stronger.  Positive surprises: INFO, HCLT, WPRO, PSYS, MPHL  Guidance, 1QFY21 performance; positive outlook drives upgrade in earnings estimates: Companies have gone through their learning curve in adapting to the pandemic and have healthy deal wins/robust deal pipeline. Revenue and margin guidance from INFO/HCL was a surprise. INFO expects FY21 revenue growth of 0-2% YoY CC, while HCL expects it at -2.3% to -0.8% YoY CC. Companies have indicated that the worst is now behind and expect revenues to stabilize/recover. While some of the reduced travel/utility costs are expected to return, companies do not see material headwinds for margins. FY21 EBIT margin guidance of INFO (21-23%) and HCL (19.5-20.5%) is better than expected.  Double digit earnings upgrade for majority of companies: In Q1, most companies delivered a surprise with margin resiliency. This coupled with largely stable deal wins, optimistic outlook, better than expected guidance for FY21 (HCL, Infosys) have resulted in upgrade of earnings estimates for FY21-22 by 10-17% for Tier I companies (except TCS) and 12-25% for MTCL/PSYS/HEXW/CYL in Tier II.

August 2020 38 Strategy

Exhibit 66: Revenue declined for Tier I Exhibit 67: Revenue growth decelerated for Tier II

Tier I Revenue Growth (USD, YoY %) Tier II Revenue Growth (USD, YoY %) 8.5 16.2 7.5 7.8 8.1 7.8 14.6 6.9 7.3 13.3 3.4 10.7 10.5 9.9 9.1 8.4 -4.2

1.0 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21

Source: Company, MOFSL Source: Company, MOFSL

Exhibit 68: EBIT margin resiliency for Tier I… Exhibit 69: …and Tier II – a key positive

Tier I EBIT Margin (%) Tier II EBIT Margin (%) 14.9 14.9 22.1 14.3 21.9 13.9 13.6 13.7 21.2 21.4 21.3 20.9 20.9 20.8 12.4 12.8 12.8 20.0 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21

Source: Company, MOFSL Source: Company, MOFSL

Exhibit 70: Marginal expansion in median utilization Exhibit 71: Median attrition lowest in last 9 quarters IT Sector - Median Attrition (%) IT Sector - Median Utilization 17.5% 17.4% 17.3% (including trainees %) 16.6% 16.0% 16.3% 81.7% 15.1% 15.7% 13.6% 80.7% 80.4% 80.5% 79.9% 79.7% 79.4% 79.3% 79.0% 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21

Figures exclude TCS, HCL. Source: Company, MOFSL Figures exclude INFO, MPHL. Source: Company, MOFSL

August 2020 39 Strategy

UTILITIES: Impact of rebates seeping in for CPSEs; Power demand muted Power demand declined ~16% YoY in 1QFY21 due to lower requirement from Industrial and Commercial consumers owing to COVID-19 related disruptions. Furthermore, given the must-run status for renewables in the country, the brunt of the demand decline is being borne by Coal-based plants. Generation from Coal-based plants declined ~25% YoY (over Apr-Jun’20). This has led to high inventory at coal mines and power plants, despite Coal India cutting back on production to match demand. At a system level, coal inventory stood at ~122mt by end-Jun’20 (1.7 months of consumption) v/s (~64mt at end-Jun’19).

Over the past one month, India’s power demand has been improving and hovering at 2019 levels. In fact, power demand in in Aug’20 (based on the initial daily data) is up ~1% YoY.

In terms of earnings, the impact of rebates seeped in for CSPEs under our coverage (NTPC and PWGR). Given the precarious cash position of DISCOMs, the Ministry of Power had asked CPSEs to provide a rebate of 20-25%. Accordingly, NTPC and PWGR declared rebates of INR8b (S/A) and INR10.75b, respectively. While higher coal availability has led to better PAFs, availability issues at Darlipalli and Ramagundem resulted in ~INR2.25b of FC u/r for NTPC during the quarter.

Major highlights  NTPC: Adj. PAT (excl. FC u/r) was up 23% YoY to INR 33.2b owing to capacity commercialization. Reported S/A PAT declined 5% YoY to INR24.7b due to impact of the rebate.  Power Grid: Reported S/A PAT declined 18.5% YoY to INR19.8b on account of INR10.75b of rebate. Not accounting for the rebate and prior period sales, PAT would have been up 21% YoY to ~INR28b, partly aided by other income.  JSW Energy: Results reflected the impact of lower merchant sales volumes on the back of lower power demand and merchant prices. At a consolidated level, EBITDA was down 8% YoY to INR7.5b.  Torrent Power: Adj. EBITDA declined 16% YoY to INR7.0b amid higher T&D losses and lower demand for its DF business, partly offset by the off-take of UnoSugen PPA. Reported EBITDA, though, was up 16% YoY to INR9.7b, led mainly by one-off APTEL order benefit of INR2.5b.

Guidance highlights: PWGR has maintained its FY21 capex/capitalization target of INR105b/INR200-250b. According to the company, plans are afoot to commission Bipole-I of Raigarh Pugalur in the current quarter. NTPC's plan is to reach ~130GW capacity by 2032. The mix of renewable in the capacity can be >30% by 2032. NTPC expects its capitalization run-rate to hit 5-6GW p.a. over the next 3-4 years. In the current quarter, the company has provided INR8b rebate. Balance will be paid only when DISCOMs withdraw force majeure applications.

Top pick  NTPC: NTPC commercialized 5.3GW of capacities in FY20 – the highest ever in a single fiscal year. The company is guiding for ~5-6GW p.a. to be capitalized over the next 3-4 years. Capitalization has picked up pace and we expect it to drive a regulated equity CAGR of 11% over FY20-23E and boost RoE (+120bp accretion). Furthermore, muted power demand coupled with production ramp-up at Coal India’s mines, has led to an increase in coal stocks at power plants and improved plant availability factors. Thus, we expect overall FC u/r to remain low, albeit some machine related u/r may occur from time to time. The stock trades attractively at FY22E P/BV of 0.7x and dividend yield of ~7%. Maintain Buy with a DCF-based target price of INR139/share.

August 2020 40 Strategy

Exhibit 72: Net capacity additions (MW)

Net Capacity Additions (MW)

6,812 4,864 5,419 3,220 2,406 1,468 1,317 1,398 598 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21

Source: MOSL, CEA

Exhibit 73: India’s power demand is recovering (MUs)

2020: Daily Power Demand 2019: Daily Power Demand 4,500 April May June July August 2019 Avg.: 3,921MU 2019 Avg.: 3,966MU 2019 Avg.: 3,764MU 4,100 2019 Avg.: 3,733MU 2019 Avg.:3,578MU

3,700

3,300 2020 Avg.: 2,835MU 2020 Avg.: 3,661MU 2020 Avg: 3,620MU 2020 Avg.: 3,550MU 2,900 2020 Avg.: 3.324MU

2,500 05-Jul 10-Jul 15-Jul 20-Jul 25-Jul 30-Jul 05-Jun 10-Jun 15-Jun 20-Jun 25-Jun 30-Jun 01-Apr 06-Apr 11-Apr 16-Apr 21-Apr 26-Apr 04-Aug 09-Aug 14-Aug 01-May 06-May 11-May 16-May 21-May 26-May 31-May

Source: MOSL

August 2020 41 Strategy

Annexure: 1 MOFSL UNIVERSE (ACTUAL VS EXPECTATION) Sales EBIDTA PAT Gr. (%) Sales Gr. (%) EBIDTA Gr. (%) PAT (INR M) (INR M) (INR M) Var. Var. June-20 actual June-20 actual June-20 actual Var. over QoQ over QoQ over QoQ (actual) YoY (actual) YoY (actual) YoY Exp. (%) Company Exp. (%) Exp. (%) Automobiles 6,67,630 -56.9 -52.5 14.7 2,131 -98.5 -98.1 LP -94,720 PL Loss Loss Amara Raja Batt. 11,510 -36.6 -27.2 5.7 1,524 -45.4 -37.3 -2.3 627 -55.5 -54.1 -2.0 Ashok Leyland 6,509 -88.5 -83.0 39.1 -3,332 PL PL Loss -3,876 PL Loss Loss Bajaj Auto 30,792 -60.3 -54.8 6.5 4,085 -65.9 -67.4 78.6 5,280 -53.1 -59.7 20.7 Bharat Forge 4,270 -68.3 -51.5 168.7 -74 PL PL Loss -563 PL PL Loss Bosch 9,915 -64.0 -55.7 2.8 -1,021 PL PL Loss 121 -96.5 -96.0 LP CEAT 11,202 -36.1 -28.8 6.6 1,020 -39.0 -49.1 6.7 -178 PL PL Loss Eicher Motors 8,092 -66.0 -63.4 3.3 38 -99.4 -99.1 LP -552 PL PL Loss Endurance Tech. 6,031 -67.6 -62.4 -27.1 427 -85.5 -82.6 -30.8 -249 PL PL Loss Escorts 10,616 -25.4 -23.1 -4.4 1,196 -16.0 -38.5 21.0 922 5.3 -34.4 36.7 Exide Inds. 15,476 -44.3 -24.7 1.2 1,485 -63.6 -45.1 -16.8 440 -80.4 -73.8 -42.8 Hero Motocorp 29,715 -63.0 -52.4 8.0 1,081 -90.7 -83.6 LP 613 -90.3 -90.1 LP Mahindra & Mahindra 55,894 -56.4 -37.9 -2.0 5,732 -68.0 -53.3 35.7 390 -95.8 -87.9 LP Mahindra CIE 7,355 -65.7 -55.8 7.9 -963 PL PL Loss -1,286 PL PL Loss Maruti Suzuki 41,065 -79.2 -77.4 13.8 -8,634 PL PL Loss -2,494 PL PL Loss Motherson Sumi 85,039 -49.4 -43.9 10.9 -6,300 PL PL Loss -8,104 PL PL Loss Tata Motors 3,19,831 -48.0 -48.8 25.7 6,356 -78.8 -73.2 LP -84,420 Loss Loss Loss TVS Motor 14,317 -68.0 -58.9 -4.6 -488 PL PL Loss -1,391 PL PL Loss Capital Goods 3,09,821 -36.0 -51.8 -0.5 20,917 -61.3 -72.9 2.4 3,952 -85.8 -92.1 4.6 ABB 9,858 -42.9 -35.2 33.2 234 -81.1 61.7 LP 153 -78.1 -29.8 LP Bharat Electronics 16,706 -20.5 -71.2 -9.7 1,467 -57.9 -90.1 15.7 541 -73.6 -94.8 28.4 Blue Star 6,260 -60.3 -51.8 -13.1 14 -98.8 -96.4 LP -197 PL PL Loss CG Consumer Elect. 7,132 -47.0 -29.9 -10.9 988 -48.5 -28.6 26.7 737 -39.8 -26.1 13.9 Cummins India 4,982 -62.9 -52.7 -32.6 29 -98.1 -95.7 -92.4 277 -80.4 -77.2 -44.9 Engineers India 4,678 -36.3 -45.2 13.6 214 -84.6 -80.7 -16.3 481 -61.3 -62.9 -16.7 Havells India 14,791 -45.5 -33.3 3.4 1,309 -52.9 -46.7 82.5 633 -64.0 -64.3 189.9 Larsen & Toubro 2,12,600 -28.3 -51.9 2.5 16,205 -51.2 -68.4 -11.8 714 -94.8 -97.7 -74.6 Siemens 13,195 -58.7 -53.2 -14.9 -96 PL PL Loss -46 PL PL Loss Thermax 6,649 -52.2 -49.7 -15.0 -114 PL PL Loss -153 PL PL Loss Voltas 12,969 -51.1 -37.9 -4.7 668 -77.1 -65.2 6.3 812 -58.4 -49.5 78.5 Cement 2,25,007 -35.5 -30.5 -1.1 51,560 -35.4 -20.7 18.7 22,135 -37.9 -30.0 89.2 ACC 26,008 -37.3 -25.7 -1.2 5,244 -32.9 -10.5 47.6 2,680 -40.6 -16.2 65.0 Ambuja Cements 21,768 -26.9 -23.0 4.9 5,952 -14.8 -1.3 61.4 4,534 10.0 13.6 51.9 Birla Corporation 12,220 -35.1 -27.7 -15.5 2,331 -39.4 -32.4 -14.3 657 -53.2 -66.2 -13.9 Dalmia Bharat 19,740 -22.2 -20.5 2.3 6,140 -7.8 20.9 52.4 1,900 29.3 630.8 LP Grasim Industries 19,436 -61.1 -54.9 -6.7 -1,450 PL PL PL -2,114 PL PL Loss India Cements 7,570 -48.5 -34.3 -2.5 1,557 -35.6 130.9 71.9 170 -76.0 LP LP JK Lakshmi Cem. 8,252 -20.8 -22.2 1.2 1,433 -15.6 -29.1 19.3 444 -36.2 -55.9 71.7 Ramco Cements 10,418 -23.9 -25.0 7.9 2,600 -24.7 -6.9 8.2 1,096 -42.9 -25.0 7.9 Shree Cement 23,258 -23.4 -27.7 -2.9 7,006 -22.3 -35.1 0.8 3,708 2.1 -37.0 56.9 Ultratech Cement 76,338 -33.2 -29.0 0.0 20,746 -29.7 -15.0 18.8 9,060 -29.3 -31.7 73.8 Consumer 4,21,769 -15.4 -7.4 7.0 94,915 -26.3 -12.7 6.4 68,053 -19.5 -17.9 13.1 Asian Paints 29,227 -42.7 -37.0 63.6 4,843 -58.2 -43.7 166.2 2,196 -67.4 -54.3 1,482.3 Britannia 34,207 26.7 19.3 3.8 7,169 81.7 57.8 29.8 5,427 105.4 45.7 30.8 Colgate 10,406 -4.1 -2.9 9.0 3,080 2.7 17.2 31.0 1,982 17.2 -2.9 28.7 Dabur 19,800 -12.9 6.1 -1.0 4,166 -9.0 18.3 4.0 3,418 -9.8 15.0 3.9 Emami 4,813 -25.8 -9.6 5.9 1,230 -8.3 24.8 44.0 973 -6.4 -0.8 58.2 Godrej Consumer 23,273 -0.9 8.1 0.1 4,727 3.0 -0.8 4.0 3,001 3.3 5.3 0.4

August 2020 42 Strategy

Sales EBIDTA PAT Gr. (%) Sales Gr. (%) EBIDTA Gr. (%) PAT (INR M) (INR M) (INR M) Var. Var. June-20 actual June-20 actual June-20 actual Var. over QoQ over QoQ over QoQ (actual) YoY (actual) YoY (actual) YoY Exp. (%) Company Exp. (%) Exp. (%) Hind. Unilever 1,05,600 4.4 17.2 5.4 26,440 -0.1 28.0 11.4 18,730 7.0 27.5 9.1 ITC 89,113 -21.2 -17.8 6.9 26,466 -42.0 -36.4 -19.4 23,428 -26.2 -38.3 -6.1 Jyothy Labs 4,287 4.1 12.1 38.9 782 19.4 94.8 59.2 504 40.4 93.7 122.4 Marico 19,250 -11.1 28.7 3.3 4,670 1.3 65.6 17.2 3,170 -3.1 55.4 15.8 Nestle 30,505 1.7 -8.3 -5.0 7,584 5.0 -5.3 -0.8 4,975 11.1 -6.6 -2.6 Pidilite Inds. 8,778 -56.5 -43.2 24.4 664 -85.0 -77.9 LP 154 -94.8 -91.9 LP Tata Consumer 27,139 13.4 12.8 7.4 4,827 37.6 56.5 28.1 2,643 45.4 40.6 89.8 United Breweries 5,069 -75.3 -64.4 -29.3 -957 PL PL Loss -1,143 PL PL Loss United Spirits 10,302 -53.6 -48.3 10.6 -776 PL PL Loss -1,403 PL PL Loss Financials 10,34,296 10.6 -4.9 5.1 7,39,766 21.2 1.9 5.2 2,27,027 -0.3 24.4 2.1 Banks-Private 4,43,394 18.3 3.2 3.7 3,89,906 23.2 9.1 2.1 1,35,567 1.5 42.7 -2.9 AU Small Finance 5,159 30.4 -7.0 -8.1 4,456 53.2 41.1 39.6 2,008 68.2 75.0 40.5 Axis Bank 69,853 19.5 2.6 7.2 58,444 -0.8 -0.1 -2.9 11,122 -18.8 LP 0.3 Bandhan Bank 18,115 15.0 7.8 4.6 15,842 16.9 4.2 7.5 5,498 -31.6 6.3 -30.1 DCB Bank 3,067 0.6 -5.2 -4.4 1,911 14.8 -9.9 -0.5 794 -2.1 15.4 32.7 Equitas Holdings 4,040 19.8 -4.7 3.0 1,460 19.1 -22.5 -7.7 600 1.7 39.6 80.8 Federal Bank 12,964 12.3 6.6 5.4 9,324 19.1 -2.8 12.7 4,008 4.3 33.0 31.4 HDFC Bank 1,56,654 17.8 3.0 1.8 1,28,293 15.1 -1.0 -2.6 66,586 19.6 -3.9 -0.3 ICICI Bank 92,798 19.9 4.0 6.4 1,07,765 71.4 45.8 9.4 25,992 36.2 112.8 -2.3 IndusInd Bank 33,092 16.4 2.4 4.4 29,277 13.0 2.5 5.7 5,103 -64.4 61.9 -31.5 Kotak Mahindra Bank 37,239 17.4 4.6 -0.8 26,237 9.4 -3.7 -3.4 12,445 -8.5 -1.7 -5.6 RBL Bank 10,413 27.4 2.0 7.9 6,897 14.5 -8.3 -3.0 1,412 -47.1 23.5 15.0 Banks-PSU 3,34,576 13.7 13.2 7.8 2,23,810 27.7 -5.1 7.1 33,251 10.0 -18.7 6.7 Bank of Baroda 68,161 4.9 0.3 2.0 43,199 1.0 -15.6 -11.6 -8,643 PL PL PL State Bank 2,66,416 16.1 17.0 9.4 1,80,611 36.3 -2.2 12.8 41,893 81.2 17.0 62.3 Life Insurance 1,12,729 -11.0 -46.2 6.7 8,829 10.6 -14.9 73.3 7,387 4.1 50.4 33.1 HDFC Life Insur. 57,218 -11.3 -45.3 4.3 2,518 -33.1 85.0 -19.2 4,511 6.2 44.7 35.2 ICICI Pru Life 55,511 -10.6 -47.0 9.4 6,311 49.5 -30.0 219.1 2,876 0.9 60.2 29.9 NBFC 1,43,597 2.9 -5.9 2.1 1,17,221 5.7 -4.2 9.2 50,822 -10.5 21.9 10.5 Bajaj Finance 32,956 10.3 -12.2 -1.6 29,954 24.7 -7.3 11.5 9,623 -19.5 1.5 8.2 Chola. Inv & Fin. 9,830 4.3 -3.2 1.8 6,372 7.5 3.8 11.7 4,310 37.1 910.2 161.6 HDFC 33,353 9.7 -5.9 2.6 31,708 5.0 -10.1 5.5 25,373 17.2 12.8 6.2 ICICI Securities 5,464 35.9 13.4 11.3 2,594 47.4 24.9 16.1 1,931 69.7 23.9 15.2 IIFL Wealth Mgt 1,990 -5.6 -22.6 -2.9 690 -17.8 -26.6 6.3 819 33.3 LP 63.1 L&T Fin.Holdings 14,089 -15.7 -9.2 2.3 10,019 -24.3 -8.8 8.1 -782 PL PL PL M & M Financial 13,759 8.7 2.1 10.8 10,447 44.2 8.1 25.2 1,497 118.7 -32.2 -6.9 MAS Financial 898 -5.8 -13.6 0.9 775 2.5 -3.9 10.3 356 -12.5 -0.1 -6.7 PNB Housing 4,380 -6.2 3.6 5.8 4,046 -30.0 -5.4 7.5 2,572 -9.6 LP 325.7 Shriram Transport Fin. 18,354 -6.4 -5.1 0.4 14,952 -3.1 1.5 2.6 3,201 -49.5 43.3 -5.5 Shriram City Union 8,525 -6.7 0.4 0.3 5,666 -1.9 10.2 9.7 1,923 -24.1 25.6 18.7 Healthcare 4,57,877 6.6 -0.7 1.0 1,11,669 22.9 25.0 24.7 65,559 26.6 32.3 32.7 Ajanta Pharma 6,682 9.2 -2.0 5.0 2,232 32.6 34.2 47.4 1,478 28.9 31.2 46.8 Alembic Pharma 13,413 41.4 11.1 18.5 4,074 81.1 24.4 41.1 3,015 100.4 29.2 57.4 Alkem Lab 19,775 6.9 -3.5 8.7 5,072 91.8 67.4 77.8 3,961 113.5 84.0 96.7 Aurobindo Pharma 59,248 8.8 -3.8 2.6 13,174 14.9 -1.9 11.2 8,080 26.0 -6.1 14.6 Biocon 16,713 14.6 7.3 -0.5 4,123 -5.6 29.5 -1.0 1,488 -27.8 21.0 -22.9 Cadila Health 36,399 4.1 -3.0 -0.8 8,154 16.2 3.1 17.7 4,540 26.3 4.7 22.6 Cipla 43,462 9.0 -0.7 4.1 10,488 15.9 65.6 47.8 5,780 20.9 110.4 82.4 Divis Labs 17,305 48.8 24.5 32.9 7,001 78.0 57.5 63.3 4,818 74.0 53.2 53.9

August 2020 43 Strategy

Sales EBIDTA PAT Gr. (%) Sales Gr. (%) EBIDTA Gr. (%) PAT (INR M) (INR M) (INR M) Var. Var. June-20 actual June-20 actual June-20 actual Var. over QoQ over QoQ over QoQ (actual) YoY (actual) YoY (actual) YoY Exp. (%) Company Exp. (%) Exp. (%) Dr Reddy’ s Labs 44,175 14.9 -0.3 -0.6 11,129 53.1 18.3 15.4 5,793 30.4 1.4 6.4 Glenmark Pharma 23,448 2.7 -13.5 -6.8 4,781 45.9 16.8 28.4 2,057 51.4 14.3 43.4 Granules India 7,356 23.6 22.6 8.7 1,987 67.5 63.0 39.8 1,228 47.5 88.7 61.4 GSK Pharma 6,486 -17.7 -16.4 -16.9 1,141 -31.0 -34.3 -32.0 787 -32.9 -38.0 -37.9 Ipca Labs. 15,344 42.3 42.9 31.0 5,863 195.0 166.8 135.0 4,437 262.8 228.3 152.1 Laurus Labs 9,743 77.0 16.1 34.3 2,783 247.4 47.5 100.9 1,718 1,338 60.5 169.8 Lupin 35,279 -9.0 -8.3 -11.0 5,085 -31.9 -3.2 -10.3 1,150 -59.0 -55.1 -49.8 Strides Pharma 7,818 14.0 26.4 20.0 1,510 22.1 80.4 36.4 560 64.1 LP 92.5 Sun Pharma 74,672 -9.6 -7.6 -9.1 16,463 -9.2 17.7 6.6 11,460 -13.2 55.2 23.3 Torrent Pharma 20,560 1.7 5.7 2.6 6,610 22.2 20.6 22.2 3,210 48.6 36.9 38.0 Infrastructure 10,518 -21.6 -45.5 33.9 1,762 -11.7 -53.1 110.1 1,089 -3.1 -53.0 16,900.8 Ashoka Buildcon 5,724 -34.7 -54.4 17.8 819 -25.2 -64.2 110.7 691 6.8 -58.0 678.8 KNR Constructions 4,794 3.2 -29.0 59.8 943 4.8 -35.8 109.6 398 -16.6 -40.8 LP Media 19,181 -38.3 -28.6 14.5 6,364 -52.6 189.7 501.5 4,244 -49.6 LP 2,748.6 Sun TV 6,061 -45.0 -17.6 4.2 4,165 -39.0 -17.3 37.6 2,828 -25.9 13.1 51.0 Zee Entertainment 13,120 -34.7 -32.8 19.9 2,199 -66.7 LP LP 1,416 -69.2 LP LP Metals 7,50,541 -25.8 -20.7 5.9 82,822 -52.0 -46.6 -2.7 -30,249 PL PL Loss Hindustan Zinc 39,890 -20.0 -9.2 5.4 15,760 -36.4 -19.8 6.2 13,590 -23.0 1.5 34.7 Hindalco 2,58,360 -15.3 -13.2 16.2 25,959 -26.0 -29.7 -7.6 5,061 -40.9 -58.5 99.3 JSPL 91,585 -7.9 3.9 7.5 22,638 4.2 2.0 19.9 1,029 987.7 -53.7 LP JSW Steel 1,17,820 -40.5 -34.1 -4.0 13,410 -63.9 -54.9 3.4 -5,610 PL PL Loss Tata Steel 2,42,885 -32.4 -28.1 1.0 5,055 -90.6 -89.1 -51.1 -44,320 PL PL Loss Oil & Gas 25,14,737 -47.5 -42.4 -1.3 3,25,428 -13.2 13.5 -7.2 1,58,351 -11.1 -18.7 -1.4 Oil Ex OMCs 11,25,711 -43.7 -38.4 -22.9 1,87,045 -27.1 -25.4 -22.8 90,343 -26.8 -30.4 -25.6 Aegis Logistics 6,364 -67.5 -48.7 -41.8 674 -34.0 -27.6 -53.4 298 -47.6 -12.5 -64.8 BPCL 3,87,851 -49.2 -43.8 19.7 39,724 84.9 570.7 57.8 20,762 93.1 LP 139.0 Castrol India 4,906 -52.8 -28.7 41.9 953 -66.5 -44.9 182.0 654 -64.2 -47.8 195.6 GAIL 1,20,875 -34.0 -31.9 -8.5 6,226 -72.4 -74.8 -67.2 2,555 -80.2 -93.3 -83.7 Gujarat Gas 10,829 -58.6 -59.4 -14.1 1,857 -60.2 -56.5 19.8 587 -74.9 -76.1 71.1 Gujarat State Petronet 4,028 -21.4 -8.2 4.5 3,462 -13.9 -2.7 28.4 1,994 -3.3 -11.6 51.9 HPCL 3,77,209 -46.9 -43.0 27.9 43,536 200.2 6,542.7 -12.6 28,138 247.0 173.3 -12.4 IOC 6,23,966 -52.6 -47.3 33.2 55,123 -33.3 88.0 65.3 19,108 -46.9 -68.8 LP MRPL 44,726 -51.8 -68.4 18.1 -4,777 Loss Loss PL -5,199 Loss Loss Loss Mahanagar Gas 2,618 -65.4 -61.9 45.6 800 -71.1 -67.2 5.3 453 -73.4 -72.8 8.9 Petronet LNG 48,836 -43.3 -43.0 -24.7 9,099 -11.1 30.5 4.5 5,202 -7.1 44.9 4.1 Reliance Inds. 8,82,530 -43.8 -35.3 -26.0 1,68,750 -20.8 -23.4 -18.7 83,799 -17.4 -12.5 -16.1 Retail 64,105 -57.5 -55.9 -5.9 -7,199 PL PL Loss -9,371 PL PL Loss Aditya Birla Fashion 3,200 -84.5 -82.4 9.5 -3,513 PL PL Loss -3,999 PL Loss Loss Avenue Supermarts 38,832 -33.2 -37.9 -5.7 1,118 -81.3 -73.2 -27.9 401 -87.6 -85.2 -11.3 Shoppers Stop 539 -93.5 -92.4 -39.8 -1,024 PL PL Loss -1,112 PL Loss Loss Titan Company 19,790 -61.6 -58.0 -5.3 -2,530 PL PL Loss -2,930 PL PL Loss Trent 963 -87.4 -86.7 -26.7 -1,191 PL PL Loss -1,395 PL PL Loss V-Mart Retail 781 -82.8 -76.5 -15.8 -58 PL PL Loss -336 PL Loss Loss Technology 11,67,023 4.7 -2.9 -0.3 2,74,979 11.2 -2.4 4.9 1,89,699 1.2 -6.2 1.2 Cyient 9,917 -8.9 -7.6 3.0 995 -31.1 -28.0 -5.0 814 -9.9 8.1 31.9 HCL Technologies 1,78,288 8.5 -4.1 -0.2 45,656 34.1 -3.3 11.1 29,231 31.5 -7.3 10.5 Hexaware Tech. 15,691 19.9 1.8 7.1 2,713 28.1 16.1 23.6 1,522 0.7 -13.0 31.1 Infosys 2,36,650 8.5 1.7 2.3 61,210 18.8 7.8 10.1 42,330 11.5 -2.0 9.9

August 2020 44 Strategy

Sales EBIDTA PAT Gr. (%) Sales Gr. (%) EBIDTA Gr. (%) PAT (INR M) (INR M) (INR M) Var. Var. June-20 actual June-20 actual June-20 actual Var. over QoQ over QoQ over QoQ (actual) YoY (actual) YoY (actual) YoY Exp. (%) Company Exp. (%) Exp. (%) L&T Infotech 29,492 18.7 -2.1 -0.3 5,920 29.3 2.4 1.5 4,164 17.1 -2.6 8.1 Mindtree 19,088 4.1 -6.9 -2.0 3,478 50.1 -6.3 18.6 2,130 129.8 3.3 7.3 MphasiS 22,882 10.9 -2.5 0.0 4,178 11.6 -5.9 3.1 2,750 3.9 -22.1 -3.3 NIIT Tech. 10,570 10.1 -4.7 -5.0 1,686 2.7 -14.5 -9.4 799 -21.8 -29.7 -34.0 Persistent Systems 9,914 19.1 7.0 9.2 1,464 21.8 14.7 32.2 900 9.1 7.4 45.4 TCS 3,83,220 0.4 -4.1 -2.5 1,00,250 -0.1 -8.7 -4.2 70,490 -13.5 -12.9 -12.6 Tech Mahindra 91,063 5.2 -4.0 1.1 13,005 -1.0 -3.5 9.4 9,723 1.4 20.9 31.9 Wipro 1,50,336 1.6 -4.9 -0.4 32,993 11.4 2.5 15.0 24,113 0.4 2.8 11.4 Zensar Tech 9,912 -7.0 -2.6 3.0 1,430 -5.6 1.0 26.2 732 -7.0 5.3 33.3 Telecom 4,25,056 6.6 -2.3 1.4 1,73,153 18.2 1.2 6.4 -50,012 Loss Loss Loss Bharti Airtel 2,39,387 15.4 0.9 2.2 1,04,079 25.7 2.4 3.1 -4,363 Loss Loss Loss Bharti Infratel 35,047 -5.6 -3.3 6.0 17,672 -6.8 4.0 21.7 7,036 -20.7 8.3 1.3 Tata Comm 44,029 5.6 0.1 -2.5 10,418 26.2 19.9 14.9 2,683 236.9 160.2 89.3 Vodafone Idea 1,06,593 -5.4 -9.3 -0.2 40,984 12.3 -6.4 7.3 -55,368 Loss Loss Loss Utilities 4,45,600 -5.8 -13.0 -5.3 1,99,940 7.1 -5.9 17.4 67,346 15.8 -1.9 46.9 JSW Energy 18,052 -25.2 0.7 -3.0 7,455 -7.9 29.7 1.9 2,132 -12.7 96.6 5.4 NTPC 2,42,560 -1.8 -16.6 -3.2 85,476 22.8 -6.8 38.9 33,194 22.7 0.7 66.8 Power Grid Corp. 93,828 6.6 -12.1 12.3 82,712 4.8 -8.6 9.0 28,059 21.4 -5.7 40.4 Tata Power 64,530 -15.4 -3.3 -20.7 17,313 -20.1 6.2 -6.6 2,294 -18.0 11.7 0.4 Torrent Power 26,631 -28.7 -10.7 -26.9 6,984 -16.2 -15.6 -1.7 1,667 -39.4 -40.8 0.2 Others 2,62,625 -30.3 -34.2 -9.2 26,082 -66.9 -53.1 -24.2 -14,060 PL PL Loss Brigade Enterpr. 2,033 -71.3 -68.0 -57.3 474 -74.0 -64.9 -61.6 -527 PL PL PL BSE 1,032 -5.7 -13.7 -16.6 -17 PL PL PL 248 -30.6 LP 22.5 Concor 11,891 -27.4 -24.2 -1.6 1,590 -60.6 -66.5 -26.0 616 -73.7 -79.9 -39.4 Coromandel International 32,132 50.8 12.0 0.4 4,125 111.2 5.6 3.3 2,506 301.4 7.0 3.3 Essel Propack 7,415 17.7 7.6 11.6 1,466 35.0 5.9 17.6 605 113.6 24.5 59.3 Godrej Agrovet 15,542 -8.7 4.1 -0.8 1,659 17.0 244.2 28.5 885 16.5 288.2 26.4 Indian Hotels 1,436 -85.9 -86.5 0.6 -2,660 PL PL Loss -3,445 PL PL Loss Interglobe Aviation 7,667 -91.9 -90.8 -62.2 -15,376 PL Loss Loss -28,443 PL Loss Loss Kaveri Seed 7,485 14.2 1,341.7 3.7 2,793 19.7 LP 5.1 2,910 27.1 3,011.2 11.6 Lemon Tree Hotel 407 -71.1 -76.9 -6.2 44 -90.3 -93.2 1,502.6 -419 Loss Loss Loss MCX 730 -8.1 -30.7 14.8 265 -4.3 -34.9 39.1 563 28.9 -14.1 67.1 Oberoi Realty 1,180 -80.4 -80.8 -70.9 579 -75.4 -84.4 -61.8 281 -81.5 -88.8 -71.3 P I Industries 10,601 40.6 24.0 14.9 2,292 50.3 23.0 22.7 1,455 43.2 31.4 28.4 Phoenix Mills 1,347 -78.1 -66.3 -9.3 703 -76.0 -65.6 15.7 -424 PL PL Loss Quess Corp 24,094 0.5 -19.5 0.1 1,297 -13.1 -23.1 8.4 221 -61.8 -69.3 2.7 S H Kelkar 1,925 -29.8 -29.0 0.2 310 -33.2 -2.5 57.6 153 -17.2 20.2 272.8 SRF 15,452 -12.4 -16.8 -2.6 3,723 8.0 -4.1 28.1 1,860 16.0 -15.9 63.4 Tata Chemicals 23,482 -9.1 -1.3 -4.9 3,598 -30.1 -10.1 -20.4 133 -91.6 -92.8 -92.8 Team Lease Serv. 11,364 -9.2 -14.6 -9.1 246 6.1 -6.0 22.9 171 -9.0 -10.8 -28.8 Trident 7,079 -45.8 -28.5 6.7 1,181 -59.4 -12.0 97.9 101 -91.8 -74.5 LP UPL 78,330 -0.9 -29.7 -9.3 17,790 7.3 -18.0 -3.7 6,490 10.4 -19.9 -5.6 MOFSL Universe 87,75,783 -30.4 -29.4 1.4 21,04,289 -10.4 -10.8 7.3 6,09,043 -34.5 -29.3 14.9 MOFSL Ex Corp Banks 82,78,557 -32.0 -30.8 1.1 17,14,270 -16.4 -13.9 7.5 5,38,680 -37.9 -34.5 16.8 MOFSL Ex OMC 73,86,758 -24.8 -25.3 -2.3 19,65,906 -11.8 -15.4 6.1 5,41,035 -38.2 -32.1 10.2 MOFSL Ex Financials 77,41,488 -33.7 -31.7 1.0 13,64,523 -21.5 -16.5 8.4 3,82,017 -45.6 -43.8 24.1 Note: Actual Vs Expectation is taken In Line for +/- 5% Variance. PL: Profit to Loss; LP: Loss to Profit Source: Company, MOFSL

August 2020 45 Strategy

N O T E S

August 2020 46 Strategy

India Strategy, Thematic and Quant Research Gallery

August 2020 47 Strategy

Investment Rating Expected return (over 12-month) BUY >=15% SELL < - 10% NEUTRAL > - 10 % to 15% UNDER REVIEW Rating may undergo a change NOT RATED We have forward looking estimates for the stock but we refrain from assigning recommendation *In case the recommendation given by the Research Analyst is inconsistent with the investment rating legend for a continuous period of 30 days, the Research Analyst shall within following 30 days take appropriate measures to make the recommendation consistent with the investment rating legend.

Disclosures: The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).

Motilal Oswal Financial Services Ltd. (MOFSL) is a SEBI Registered Research Analyst having registration no. INH000000412. MOFSL, the Research Entity (RE) as defined in the Regulations, is engaged in the business of providing Stock broking services, Investment Advisory Services, Depository participant services & distribution of various financial products. MOFSL is a subsidiary company of Passionate Investment Management Pvt. Ltd.. (PIMPL). MOFSL is a listed public company, the details in respect of which are available on www.motilaloswal.com. MOFSL (erstwhile Motilal Oswal Securities Limited - MOFSL) is registered with the Securities & Exchange Board of India (SEBI) and is a registered Trading Member with National Stock Exchange of India Ltd. (NSE) and Bombay Stock Exchange Limited (BSE), Multi Commodity Exchange of India Limited (MCX) and National Commodity & Derivatives Exchange Limited (NCDEX) for its stock broking activities & is Depository participant with Central Depository Services Limited (CDSL) National Securities Depository Limited (NSDL),NERL, COMRIS and CCRL and is member of Association of Mutual Funds of India (AMFI) for distribution of financial products and Insurance Regulatory & Development Authority of India (IRDA) as Corporate Agent for insurance products. Details of associate entities of Motilal Oswal Financial Services Limited are available on the website at http://onlinereports.motilaloswal.com/Dormant/documents/Associate%20Details.pdf

Details of pending Enquiry Proceedings of Motilal Oswal Financial Services Limited are available on the website at https://galaxy.motilaloswal.com/ResearchAnalyst/PublishViewLitigation.aspx

MOFSL, it’s associates, Research Analyst or their relative may have any financial interest in the subject company. MOFSL and/or its associates and/or Research Analyst may have actual/beneficial ownership of 1% or more securities in the subject company in the past 12 months. MOFSL and its associate company(ies), their directors and Research Analyst and their relatives may; (a) from time to time, have a long or short position in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOFSL even though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report. Research Analyst may have served as director/officer, etc. in the subject company in the past 12 months. MOFSL and/or its associates may have received any compensation from the subject company in the past 12 months.

In the past 12 months , MOFSL or any of its associates may have: a) managed or co-managed public offering of securities from subject company of this research report, b) received compensation for investment banking or merchant banking or brokerage services from subject company of this research report, c) received compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company of this research report. d) Subject Company may have been a client of MOFSL or its associates in the past 12 months.

MOFSL and it’s associates have not received any compensation or other benefits from the subject company or third party in connection with the research report. To enhance transparency, MOFSL has incorporated a Disclosure of Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report. MOFSL and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, the recipients of this report should be aware that MOFSL may have a potential conflict of interest that may affect the objectivity of this report. Compensation of Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. Above disclosures include beneficial holdings lying in demat account of MOFSL which are opened for proprietary investments only. While calculating beneficial holdings, It does not consider demat accounts which are opened in name of MOFSL for other purposes (i.e holding client securities, collaterals, error trades etc.). MOFSL also earns DP income from clients which are not considered in above disclosures. Above disclosures include beneficial holdings lying in demat account of MOFSL which are opened for proprietary investments only. While calculating beneficial holdings, It does not consider demat accounts which are opened in name of MOFSL for other purposes (i.e holding client securities, collaterals, error trades etc.). MOFSL also earns DP income from clients which are not considered in above disclosures.

Terms & Conditions: This report has been prepared by MOFSL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of MOFSL. The report is based on the facts, figures and information that are considered true, correct, reliable and accurate. The intent of this report is not recommendatory in nature. The information is obtained from publicly available media or other sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. The report is prepared solely for informational purpose and does not constitute an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments for the clients. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. MOFSL will not treat recipients as customers by virtue of their receiving this report. Analyst Certification The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report.

Disclosure of Interest Statement Companies where there is interest Analyst ownership of the stock No A graph of daily closing prices of securities is available at www.nseindia.com, www.bseindia.com. Research Analyst views on Subject Company may vary based on Fundamental research and Technical Research. Proprietary trading desk of MOFSL or its associates maintains arm’s length distance with Research Team as all the activities are segregated from MOFSL research activity and therefore it can have an independent view with regards to subject company for which Research Team have expressed their views.

Regional Disclosures (outside India) This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject MOFSL & its group companies to registration or licensing requirements within such jurisdictions.

For Hong Kong: This report is distributed in Hong Kong by Motilal Oswal capital Markets (Hong Kong) Private Limited, a licensed corporation (CE AYY-301) licensed and regulated by the Hong Kong Securities and Futures Commission (SFC) pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) “SFO”. As per SEBI (Research Analyst Regulations) 2014 Motilal Oswal Financial Services Limited(SEBI Reg No. INH000000412) has an agreement with Motilal Oswal capital Markets (Hong Kong) Private Limited for distribution of research report in Hong Kong. This report is intended for distribution only to “Professional Investors” as defined in Part I of Schedule 1 to SFO. Any investment or investment activity to which this document relates is only available to professional investor and will be engaged only with professional investors.” Nothing here is an offer or solicitation of these securities, products and services in any jurisdiction where their offer or sale is not qualified or exempt from registration. The Indian Analyst(s) who compile this report is/are not located in Hong Kong & are not conducting Research Analysis in Hong Kong.

For U.S: Motilal Oswal Financial Services Limited (MOFSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In addition MOFSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOFSL, including the products and services described herein are not available to or intended for U.S. persons. This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOFSL has entered into a chaperoning agreement with a U.S. registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this chaperoning agreement.

The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL, and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.

For Singapore: In Singapore, this report is being distributed by Motilal Oswal Capital Markets Singapore Pte Ltd (“MOCMSPL”) (Co.Reg. NO. 201129401Z) which is a holder of a capital markets services license and an exempt financial adviser in Singapore, as per the approved agreement under Paragraph 9 of Third Schedule of Securities and Futures Act (CAP 289) and Paragraph 11 of First Schedule of Financial Advisors Act (CAP 110) provided to MOCMSPL by Monetary Authority of Singapore. Persons in Singapore should contact MOCMSPL in respect of any matter arising from, or in connection with this report/publication/communication. This report is distributed solely to persons who qualify as “Institutional Investors”, of which some of whom may consist of "accredited" institutional investors as defined in section 4A(1) of the Securities and Futures Act, Chapter 289 of Singapore (“the SFA”). Accordingly, if a Singapore person is not or ceases to be such an institutional investor, such Singapore Person must immediately discontinue any use of this Report and inform MOCMSPL.

Disclaimer: The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. Certain transactions -including those involving futures, options, another derivative products as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alternations to this statement as may be required from time to time without any prior approval. MOFSL, its associates, their directors and the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities functions as a separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of information that is already available in publicly accessible media or developed through analysis of MOFSL. The views expressed are those of the analyst, and the Company may or may not subscribe to all the views expressed therein. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject MOFSL to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. Neither the Firm, not its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. The person accessing this information specifically agrees to exempt MOFSL or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOFSL or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOFSL or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays.

Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022 71934200/ 022-71934263; Website www.motilaloswal.com. CIN No.: L67190MH2005PLC153397.Correspondence Office Address: Palm Spring Centre, 2nd Floor, Palm Court Complex, New Link Road, Malad(West), Mumbai- 400 064. Tel No: 022 7188 1000. Registration Nos.: Motilal Oswal Financial Services Limited (MOFSL)*: INZ000158836(BSE/NSE/MCX/NCDEX); CDSL and NSDL: IN-DP-16-2015; Research Analyst: INH000000412. AMFI: ARN - 146822; Investment Adviser: INA000007100; Insurance Corporate Agent: CA0579 ;PMS:INP000006712. Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670); PMS and Mutual Funds are offered through MOAMC which is group company of MOFSL. Motilal Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.: INP000004409) is offered through MOWML, which is a group company of MOFSL. Motilal Oswal Financial Services Limited is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs,Insurance Products and IPOs.Real Estate is offered through Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. which is a group company of MOFSL. Private Equity is offered through Motilal Oswal Private Equity Investment Advisors Pvt. Ltd which is a group company of MOFSL. Research & Advisory services is backed by proper research. Please read the Risk Disclosure Document prescribed by the Stock Exchanges carefully before investing. There is no assurance or guarantee of the returns. Investment in securities market is subject to market risk, read all the related documents carefully before investing. Details of Compliance Officer: Name: Neeraj Agarwal, Email ID: [email protected], Contact No.:022-71881085.

* MOFSL has been amalgamated with Motilal Oswal Financial Services Limited (MOFSL) w.e.f August 21, 2018 pursuant to order dated July 30, 2018 issued by Hon'ble National Company Law Tribunal, Mumbai Bench

August 2020 48