Q3FY21 Post Earnings Review

Q 3 F Y 2 1 Post Earnings R e v i e w

Broad based sectoral r e c o v e r y

18th March 2021 Q3FY21: Post Earnings Summary

Broad-based sectoral recovery

• With majority of businesses functioning normally after multi-phases of unlocking, there was broad based recovery across sectors, evident in growth in both the top-line and bottom-line

• Successful roll-out of COVID-19 vaccination program has further fueled optimism about sustainable and strong economic expansion in coming quarters

• The emphasis on infrastructure and capital spending in the union budget will facilitate job creation and increase demand within the economy Operating margins supported by cost control

• Companies continued to focus on cost rationalization by maintaining travelling, sales and employee cost under control, resulting in growth in operating margins

• However, there were some pressure on raw material cost arising out of increasing global commodity prices Banking and Cement sector among key beneficiaries of the Union Budget

• Setting up of an asset reconstruction company in the Union Budget will facilitate the banking sector as it will keep a check on the treatment of non-performing and stressed loans within the system

• Increased spending on highways, rural housing and infrastructure will drive higher demand for cement and allied products Rural growth sustains while urban demand recovers

• Rural sector continued to outperform, driven by growth in agricultural activity and government initiatives through rural programs

• Demand in urban sector has also improved with stabilization in the job market and recovery across most economic sectors 2 Focus Coverage Companies

Coverage Companies Coverage Companies Coverage Companies Coverage Companies BFSI – Banking Consumer – Essentials IT Oil & Gas HDFC Bank Britannia Industries Infosys Indraprastha Gas Ltd ICICI Bank Nestle India TCS Mahanagar Gas Ltd Kotak Bank ITC Ltd. HCL Technologies Petronet LNG Ltd Axis Bank Hindustan Unilever Tech Mahindra BPCL SBI bank Tata Consumer Products Wipro HPCL IndusInd Bank Consumer – Personal Care Persistent Systems Auto and Auto Ancillary Karur Vysya Bank Colgate Palmolive India Tata Elxsi Tata Motors Maruti Suzuki Bandhan Bank Godrej Consumers Mindtree Bajaj Auto BFSI – NFBCs / Specialty Finance Emami Ltd. Sonata Software Ashok Leyland Bajaj Finance Ltd. Consumer – Durables Happiest Minds Eicher Motors Bajaj Finserv Ltd. Blue Star Infibeam Avenues Minda Corporation Cholamandalam Investments Whirlpool India Pharmaceuticals Minda Industries HDFC AMC Symphony Sun Pharma Sundaram Fasteners HDFC Ltd. Consumer – Others Dr. Reddy Labs NAM Balkrishna Industries Asian Paints Cipla CreditAccess Grameen Bharat Forge Berger Paints Lupin ICICI Securities Endurance Technology Avenue Supermarts Glenmark Pharma BFSI – Life Insurance Miscellaneous HDFC Life Cements Cadila Healthcare Emmbi Industries ICICI Prudential Ultratech Cement Aurobindo Pharma Solar Industries SBI Life Ramco Cement Alembic Pharma ABB Max Financial Shree Cement Granules India Petrochemical and Chemicals Holding Companies ACC Cement Torrent Pharma Reliance Industries Bajaj Holdings Supreme Petrochemicals EID Parry UPL Ltd. Ramco Industries Aarti Industries Pilani Investments Research Contributions

Harit Shah Lead Analyst IT and Related Sector Email:- [email protected] ; Ph no +91-22-66965555

Priyanka Baliga Associate Analyst NBFCs | Specialty Finance Email:- [email protected] ; Ph n0 +91-22-66965408

4 Table of Contents: Sectoral Earnings Review

1 BSFI Sector Banking 6-11 NFBCs / Specialty Finance 12-16 Life Insurance 17-24 2 Consumer Sector Essentials 25-35 Personal Care 36-41 Consumer Durables 42-47 Others (Home Improvements | Supermarts) 48-54 3 Cement Sector 55-61 4 IT Sector 62-73 5 Pharmaceutical Sector 74-88 6 Petrochemical and Chemical Sector 89-95 7 Oil & Gas 96-104 8 Auto and Auto Ancillary Sector 105-119 9 Holding Companies 120-125 10 Miscellaneous 126-130

5 BFSI Sector

6 Earnings Review | Banking | Summary key take aways

Restructuring complete; Better visibility in outlook of credit costs • While the SC’s standstill on recognition of NPAs remain, the bank have been providing for the likely stressed assets. • The restructuring for non MSME assets have been complete, recognized and provided for. The banks have still held provisions charged during the first two quarters. • Collection efficiency for larger banks, especially, have remained largely the same or improved versus the last quarter. • Though asset quality is expected to worsen yet, the credit costs are likely to normalize on a rolling basis. Advance trends continue • The advance growth trends remained varied across banks and in line with their recent trends and strategy. Sequential growth for banks have improved. • Banks remain well capitalized banks and have witnessed a lower funding costs sequentially. • Deposits outgrow advances and the banks continue to focus on steady deposit franchises. NIMs have remained largely stable sequentially • NIMs have remained largely stable as yields have been lower. • The higher liquidity has impacted NIMs but is likely to gradually recede. Costs have risen • Costs have risen on account of employee expenses on gratuity and wage revisions. The wage charge is likely to subside. • Operating costs have risen and are likely to rise on account of resumption of business activity. Valuation • Most stocks are trading at almost their recent historic averages. While we expect the improvement in economic activity, earnings are likely to be dependent on on-ground improvement. We like ICICI Bank and SBI bank.

7 Earnings Review | Banking | Coverage: Results Summary (1/2)

Companies Net Interest Income/Earnings Asset Quality / Provisioning Outlook / Strategy

• NII grew 15% YoY on an advance growth of 15.6% YoY. • GNPA were at 0.8% and NNPA 0.01%. • We expect an ROA of 2.2% by FY23, • NIM remained largely stable. C/I • Ex the same it was 1.38% - largely at the improving from 1.9% in FY21. HDFC Bank was lower by 75 bps QoQ. same levels as the last quarter and • We have factored CAGR in PAT at • PAT grew by 18% YoY on lower year. 28% and AUM of 18% over FY21-23. provisions

• NII grew 16% YoY on an advance • We expect ROA at 1.5% by FY23 growth of 10% YoY. • GNPA were at 4.3% and NNPA 0.63%. improving by 40bps from FY21. ICICI Bank • C/I rose 126 bps QoQ to 39.6%. • Ex the SC judgement, NNPA would • We have factored CAGR in PAT at • Profits rose 19.1% YoY on lower have been 1.26% 28% (on a low base) and AUM of 18% provisions. over FY21-23.

• NII grew 16.8% YoY/2.4% QoQ at INR • We expect RoA at 2.2% by FY23. 4,007 Cr on advance growth of 4.5% • GNPA was 2.26% & NNPA was 0.50%. improving from 1.9% in FY21 and QoQ. Kotak Mahindra Bank • Ex the SC stay, GNPA would be 3.27%; CAGR 19% in profits driven by • CASA was at 58.9%, higher by 173 NNPA would be 1.24%. normalized business operations and bps QoQ/ 1027 bps YoY. credit costs.

• NII grew 14% YoY on marginally improved NIMs and an advance • The Bank’s Gross NPA and Net NPA growth of 5.9% YoY. levels were 3.44% and 0.78% • We expect RoA at 80 bps in FY23 • Other incomes growth remained respectively. and PAT CAGR of 40% over a low Axis Bank weaker, remaining at the same • Ex SC stay, the GNPA would have been base. levels as last quarter and the year. 4.55% and Net NPA ratio would have • However, the credit costs are likely • PAT was adversely impacted on been 1.19%. to remain higher. account of prudent expense and provisioning charges.

8 Earnings Review | Banking | Coverage: Results Summary (2/2)

Companies Net Interest Income/Earnings Asset Quality / Provisioning Outlook / Strategy

• NII grew 3.7% YoY/2.3% QoQ to INR • The GNPA were 4.77% and NNPA were • We expect RoA at ~0.5% by FY22. We 28,820 Cr. NIMs improved 2bps 1.23% lower by 16bps/27 bps expect a stronger AUM growth QoQ as deposit cost fell further. SBI respectively. driven by the strong economic • Expenses were higher as the bank • Ex the SC standstill, they would have growth and SBI being a key made wage hike provisions. The C/I been 5.44% and 1.81%. beneficiary. was 54.47%

• NII increased 10.8% YoY to INR 3,406 Cr. NIMs fell marginally by 4bps YoY to 4.1%. • The GNPA were 1.7% and NNPA were • We expect an RoA of 1.6% by FY22 • Advances grew at 4% QoQ and 0.2%. driven by a healthier AUM growth IndusInd Bank deposits grew 4.8% QoQ. CASA • Ex the SC judgement the GNPA would on a low base and normalized credit improved 140 bps QoQ to 38.4%. have been 2.93% and NNPA at 0.7% at a costs. • PPoP grew 8.3% YoY as the other PCR of 77%. incomes were lower than expected. • NII degrew 3% QoQ/grew 1 YoY. • The NIMs are likely to be lower on • The GNPA and NNPA were 7.37% and • We expect RoA at 50 bps by FY23. account of lower yields. 2.55% respectively. • While we expect a growth in • Costs grew sequentially, growing Karur Vysya Bank • Ex the SC judgement the GNPA and earnings at CAGR 16% in FY21-23, we 36.3% QoQ. The C/I rose to 69.23% NNPA would have been 9.07% and have factored a tepid AUM growth higher 2ppt QoQ. 4.08%. of 5% over the same period. • PAT degrew 69% QoQ on account of higher provisions. • Proforma Gross NPA / Net NPA stood • NII up 34.5% YoY to INR 20.7 bn at 7.12% / 2.36%, respectively • While CE for commercial banking and NIM expanded by 40bps YoY • Aggregate provisioning of INR 31.2 bn and affordable housing was at Bandhan Bank at 8.3% where it has provided INR 10.7 bn 98%; it is expected to improve for • Non-interest income up 54.7% provisions for the quarter EBB segment from 92% of Dec’20 YoY at INR 5.5 bn • Collection efficiency (CE) of EEB Segment was at 92% for Dec’20 9 Earnings Review | Banking | Coverage: Performance Overview (1/2)

Credit costs vary across bank as collections plateau and improvement monitorable

IndusInd Karur Vysya Bandhan Particulars (INR Cr) HDFC Bank ICICI Bank Kotak Bank Axis Bank SBI Bank Bank Bank Bank

Net Interest Income 16,318 9,912 4,007 7,373 28,820 3,406 584 2,072

Pre-Provision Profit 15,186 8,820 3,083 6,096 17,333 2,973 257 1,914

Provisions 3,414 2,742 599 4,604 10,342 1,854 201 1,069

Net Profit 8,758 4,940 1,854 1,117 5,196 853 35 633

Advances 10,82,324 6,99,017 2,14,103 5,82,754 23,68,139 2,07,128 49,512 76,775

Deposits 12,71,124 8,74,348 2,65,304 6,54,140 35,35,753 2,39,135 62,089 71,188

CASA (%) 43.0% 45.2% 58.9% 42.9% 43.7% 38.4% 34.6% 42.9%

NIM (%) 4.1% 3.7% 4.5% 3.6% 3.1% 4.1% 3.3% 8.3%

Cost to Income (%) 36.1% 39.6% 42.3% 45.3% 54.5% 41.8% 69.2% 27.1%

GNPA (%) 0.8% 4.3% 2.3% 3.4% 4.8% 1.7% 7.4% 1.1%

NNPA (%) 0.1% 0.6% 0.5% 0.8% 1.2% 0.2% 2.6% 0.3%

PCR (%) 88.5% 86.1% 77.9% 77.0% 75.2% 87.1% 75.2% 76.6%

Source: Company, KRChoksey Research

10 Earnings Review | Banking | Coverage: Performance Overview (2/2)

Credit costs vary across bank as collections plateau and improvement monitorable Particulars (INR IndusInd Karur Vyasa Bandhan HDFC Bank ICICI Bank Kotak Bank Axis Bank SBI Cr) Bank Bank Bank Change (%) QoQ YoY QoQ YoY QoQ YoY QoQ YoY QoQ YoY QoQ YoY QoQ YoY QoQ YoY Net Interest 3.4% 15.1% 5.8% 16.0% 2.4% 16.8% 0.6% 14.3% 2.3% 3.7% 3.9% 10.8% -3.0% 1.1% 7.7% 34.5% Income Pre-Provision Profit 9.9% 17.3% 6.8% 16.8% -6.5% 29.1% -11.6% 6.1% 5.3% -4.9% 5.0% 8.3% -42.7% -33.2% 17.6% 51.4%

Provisions -7.8% 12.2% -8.5% 31.6% 62.5% 34.9% 0.5% 32.7% 2.2% 42.6% -5.6% 77.6% -29.3% -44.8% 170.9% 262.4%

Net Profit 16.6% 18.1% 16.2% 19.1% -15.1% 16.1% -33.6% -36.4% 13.6% -6.9% 31.8% -34.4% -69.9% 129.8% -31.2% -13.5%

Advances 4.2% 15.6% 7.1% 10.0% 4.5% -1.2% 1.1% 5.9% 3.2% 7.6% 4.6% -0.1% 3.5% -0.2% 4.7% 26.7%

Deposits 3.4% 19.1% 5.0% 22.1% 1.4% 10.8% 2.9% 10.6% 3.4% 16.6% 4.8% 10.3% 1.6% -0.3% 7.7% 29.6%

(in Bps)

CASA (%) 141 349 145 -174 173 1,027 -126 173 -92 2 140 -120 77 401 470 859

NIM (%) -1 -19 10 -10 -1 -18 1 2 2 -24 -3 -4 -18 -4 30 40

Cost to Income (%) -75 -180 126 -288 373 -767 728 141 -70 387 41 -171 2,063 1,519 -230 -633

GNPA (%) -27 -62 -87 -165 -29 -20 -74 -156 -51 -217 -50 -48 56 -155 -9 -82

NNPA (%) -8 -39 -37 -86 -14 -39 -15 -131 -36 -142 -30 -83 44 -158 -14 -55

PCR (%) 402 2,177 754 996 297 1,344 - -100 420 1,172 1,070 3,522 216 1,192 661 1815

Source: Company, KRChoksey Research

11 Earnings Review | Specialty Finance | Summary Key Takeaways

Improvement yet gradual • The collection efficiency has either improved or remained the same as last quarter. • The provisions were higher or marginally lower sequentially for select NBFCs but remained elevated – The provision for Bajaj Finance were marginally lower. However, they remained relatively elevated. – The provision of Cholamandalam Finance and HDFC were higher sequentially on account of select high risk book. AUM growth rose sequentially – AUM growth rose on account of select segments such as home loans, MSME and select subsegments of vechicles. – Most B2C businesses, especially for Bajaj Finance were less enthusiastic. AMCs • AUM of AMCs grew strong on account of improvement in asset prices. Equity market share traction of major players such as HDFC MF yet remained tepid. • AMCs yields continued to improve on change in mix. Retail participation remained relatively weaker. Valuation • Most stocks trade at or above their historic averages. While economic growth is likely to augur well, we monitor the change on-ground and in execution of strategy. Interest rates are likely to move higher, which is a monitorable. • HDFC Ltd. and Bajaj Finserv remain our top picks

12 Earnings Review | Specialty Finance | Coverage: Results Summary (1/2)

Companies Net Interest Income/Earnings Asset Quality / Provisioning Outlook / Strategy • GNPA and NNPA stood at 0.55% and • NII rose 3.2% QoQ as AUM grew 0.19% respectively. The provisioning 4.7% QoQ aided by lower cost of coverage ratio was 65%. funds. However, interest reversal • We expect RoA to improve 3.3% FY23 • Provisioning coverage on stage 1 and 2 Bajaj Finance Ltd. and liquidity were a drag. on CAGR 25% in AUM and 32% in assets was 190 bps. • Its C/I ratio rose to 32.3%, 452 bps profits (on a low base). • Ex the SC stay, GNPA and NNPA ratio higher QoQ on higher operating would have been 2.86% and 1.22% expenses. respectively. • The solvency ratio was 330% and Assets Under Management represented by • Revenue from operations rose 6% cash and investments. QoQ/9.6% YoY. Total operating stood at INR 21,873 crore - an increase expenses rose 22.5% QoQ. PAT of 18% YoY for BAGIC • We expect Bajaj Finserv to clock grew 14.4% YoY/30.5% QoQ to INR • Solvency ratio stood at a healthy 708%. CAGR of 15% in revenues and 50% in Bajaj Finserv Ltd. 1,288 crore. Assets Under Management PAT between FY21-FY23E, as claims • Gross written premium increased represented by total investments normalize by FY23. by 11% YoY to INR 3,392 crore. stood at INR 70,295 crore v/s INR • New business premium was INR 60,789 crore - an increase of 16% YoY 1,706 crore - an increase of 21% YoY. for BALIC.

• NII grew 38% YoY as their NIMs are • Its Stage 3 assets were 2.57% and net of • We expect RoA at 2.5% by FY23 on likely to have improved. provisions were 1.15%. Ex of SC stay, the Cholamandalam CAGR in PAT of 37% and AUM of 15% • AUM grew 17% YoY to INR 75,813 Cr. same would be 3.75% and 2.12% Investment and over FY21-23. C/I fell marginally by 127 bps QoQ respectively. Finance Company on lower salary costs. Ltd. • PAT grew % YoY, degrew 5.3% QoQ

as the provisions remained high.

13 Earnings Review | Specialty Finance | Coverage: Results Summary (2/2)

Companies Net Interest Income/Earnings Asset Quality / Provisioning Outlook / Strategy • HDFC’s AUM grew 10% YoY / 14.8% QoQ to INR 406,800 cr - losing market share by 80 bps YoY/ 10 bps QoQ to 13.1%. It is on • PAT grew 9% QoQ/4.7% QoQ on better account of loss of share in actively yields and other incomes. Revenues managed equity AUM. grew 5.6% QoQ as its yields improved • Actively managed funds grew 14.4% • We expect CAGR 11% and 7% in profits sequentially. QoQ/degrew 5.3% YoY; Debt funds grew HDFC AMC and AUM over FY21-23E. We expect RoA • Its other incomes remained high aiding 23.7% QoQ/39.9% YoY and Liquid funds at ~25% the PAT. grew 1.7% QoQ/but remained flat on an • Margins remained steady sequentially annual basis. as opex rose even as yields improved. • Its market share stood at 13.4%/14.2%/17.6% for equity, debt and liquid funds – lower by 20 bps, higher by 60 bps and lower by 40 bps sequentially; respectively. • NII grew 11.6% QoQ/25.6% YoY on an AUM growth of 2.2% QoQ/9.3% YoY at • GNPA were 1.67% of the loan portfolio - INR 5,52167 Cr. Individual portfolio at 0.79% and • We expect the RoA at 2.5% by FY23 on • NIM were at 3.4% higher by 20 bps QoQ nonindividual portfolio at 4.00%. HDFC Ltd. CAGR in PAT of 8% and AUM of 11% over /10 bps YoY. Overall spreads rose by 10 • Ex the SC judgement the same would have FY21-23 bps YoY. been 1.91%/0.98%/4.35% respectively. It • C/I rose due to one time employee restructured 0.9% of loans. charge on ESoPs. • Proforma GNPA for CAGL / MMFL stood • it expects recovery in collections and CreditAccess Grameen • NII up by 0.8% YoY to INR 3.03bn and at 6.84% / 2.79%, respectively. write backs in Q1-Q2 of FY22E Ltd. other income grew by 116.2% YoY • overall credit costs at ~2.5% for the • Disbursements are expected to quarter increase in the coming quarters

• Revenue up by 46.9% YoY to INR • We expect ISEC’s blended market 6.2bn. New margins norms had a • Enhanced operating leverage and share to grow on account of positive ICICI Securities nominal on equities and allied adequate free cash flow to support momentum across capital markets

segment revenue. Distribution overall business. and management’s focused strategies revenue grew by 9% QoQ. towards business growth

14 Earnings Review | Specialty Finance | Coverage: Performance Overview (1/2)

HDFC fared well as home loans performed better Cholamandal Bajaj Finance Bajaj Finserv Nippon Asset CreditAccess ICICI Particulars (INR Cr) am HDFC AMC HDFC Ltd. Ltd. Ltd. Management Investments Grameen Securities Net Interest Income / 4,293 13,698 1,286 482 4,068 269 303 620 Revenue Other Income 2 2 79 113 816 130 15 NA

Employee Cost 678 1,230 154 57 143 67 95 130 Other Operating 711 9,668 215 39 394 55 53 107 Expenses Pre-Provision Profit 2,906 2,802 996 NA 4,347 NA 170 383

Provisions 1,352 25 445 NA 594 NA 276 NA

Net Profit 1,146 2,080 409 369 2,926 212 -80 267 Asset Under 1,43,550 1,43,550 75,813 4,06,800 5,52,167 2,13,000 11,254 NA Management Cost to Income (%) 32.35% 79.56% 27.03% 16.15% 11.00% 30.58% 43.5% 42.3%

Source: Company, KRChoksey Research

15 Earnings Review | Specialty Finance | Coverage: Performance Overview (2/2)

HDFC fared well as home loans Performed better Bajaj Finance Bajaj Finserv Cholamandala Nippon Asset CreditAccess ICICI Particulars (INR Cr) HDFC AMC HDFC Ltd. Ltd. Ltd. m Investments Management Grameen Securities Change (%) QoQ YoY QoQ YoY QoQ YoY QoQ YoY QoQ YoY QoQ YoY QoQ YoY QoQ YoY Net Interest Income / 3.2% -5.2% 7.8% 12.8% 9.6% 38.6% 5.6% -8.2% 12% 26% -2.2% 17.4% -8.3% 0.8% -8.9% 46.9% Revenue Operating Expenses 19.9% -9.4% 22.5% 25.5% 3.9% -13.1% 5.9% -13.5% 47% 40% -0.7% -22.2% 3.0% 37.9% 7% 29%

Pre-Provision Profit -3.3% -3.2% -26.6% -18.9% 10.7% 51.3% NA NA 10% -64% NA NA -13.5% -15.1% -4.4% 85.5%

Provisions -20.5% 62.7% -98.5% -97.0% 40.0% 226.9% NA NA 36% -80% NA NA 205.7% 403.9% NA NA

Net Profit 18.8% -29.0% 28.5% 5.1% -5.3% 5.2% 9.2% 4.7% 2% -65% 45.8% 41.9% -200.4% -173.7% -4.0% 94.6% Asset Under 4.7% -1.1% 4.7% -1.1% 12.8% 17.7% 14.8% 10.3% 2% 9% 6.5% 4.2% 10.4% 38.7% NA NA Management (in Bps)

Change in PAT Margin 241 -578 151 34 -147 -147 253 943 678 NM 2,599 3,300 NM NM 220 1056

Cost to Income (%) 452 -148 958 802 -127 -1,218 23 -262 256 793 541 1,015 430 870 -299 -1398

Source: Company, KRChoksey Research

16 Earnings Review | Life Insurance | Summary Key Takeaways

New Business Premium (NBP) improvement continue

• Premium of the four listed companies grew 20%QoQ/17% YoY. Of this SBI LIfe and Max Life grew stronger while HDFC life

degrew sequentially.

• Renewal premium grew 23% QoQ/18% YoY. First year premium grew 50% YoY/1% QoQ.

• The NBP grew 16% QoQ/15% YoY even as persistency largely remained stable sequentially.

• The APE grew 15% QoQ/3% YoY and Value of New Business (VNB) grew 15% QoQ/20% YoY. The margins for ICICI life were

adverse while HDFC life and SBI life witnessed improvement.

• Persistency remained largely stable sequentially but lower than pre Covid level.

• The AUMs have grown 11%QoQ/23% YoY of the four insurers.

• The momentum in some segments have slowed as the demand driven by the pandemic subside. The payouts have

remained lower than earlier expected as the cases and deaths have fallen. On the other hand, non-covid claims have

risen.

• The stocks remain buoyant and trade below their averages since listing. We maintain our positive stance on the sector

and prefer HDFC life and SBI life insurance.

17 Earnings Review | Life Insurance | Coverage: Results Summary (1/3)

Company Premium/APE performance Product mix/Market share

• GWP grew 20% YoY but degrew 5% QoQ. • NBP for the quarter grew 4% QoQ and 27% YoY. It remained at • Par/non par/ Ulip/protection/annuity formed HDFC Life the same level as last year for 9MFY21. 35%/30%/23%/7%/5% of the mix • APE grew 1% QoQ for the quarter and 4% YoY for 9mFY21.

• The product mix between saving/linked/ non • GWP grew 11% YoY/5% QoQ, backed by healthy single premium. linked/group/protection was • The NBP grew 16% QoQ for the quarter. For the 9MFY21, it 82.2%/48.2%/28.5%/5.5%/17.8% respectively on APE ICICI PruLife degrew 3% YoY. basis. • The APE grew 14% QoQ for the quarter and for the 9M FY21 it • It gained market share of 50 bps in the protection degrew 26% YoY NBP to 13%

• The GWP grew 18% YoY and 6% QoQ, driven by strong new business. • The product mix between saving/linked/ non SBI Life • Its non par and protection grew at a robust rate of 36% and 13% linked/group/protection was 5%/38%/11%/36%/11% YoY respectively for 9mFY21, even as YTD NBP fell 5%. respectively on APE basis. • The business traction in recent months is healthy.

• GWP rose 19.3% YoY, 2.1% QoQ. • The mix of Par/Individual protection/Group • The new business premium grew strong by 24.7% YoY/9.6% protection/Non-Par/ULIP is 17%/10%/6%/33%/33% vs Max Life QoQ. 30%/8%/6%/20%/37%. • Its market share was 9% same as the last year.

18 Earnings Review | Life Insurance | Coverage: Results Summary (2/3)

Company VNB/Margin Performance Persistency/Solvency/AUM

• The 13th month persistency rose to 89% from 88% last quarter, • The VNB margin was at 25.6% for 9MFY21. This was the 49th month rose to 67% from 66% and 61st month lower than last year due adverse costs and assumptions. HDFC Life remained at 53%. • VNB for 9M FY21 rose 45% YoY and rose 4% QoQ for the • AUM grew 21% YoY to INR 165,623 Cr. quarter. • Solvency ratio was at 202%

• The VNB margin for 9MFY21 was 21%, flat YoY. • The 13th month persistency rose to 85% from 84.4% in Q2FY21 • The VNB degrew 9% YoY for the 9MFY21. Sequentially it and 49th month fell to 65.9% from 66.4%. ICICI grew at 14%. • The 61st month rose to 59.6% from 58.8%. PruLife • The share of non linked and group saving has risen set • The AUM grew 19% YoY to INR 204,872 Cr. off by higher share of protection. • The solvency ratio was 226%

• The 13th month persistency rose to 86.17% from 85.92% in • The VNB margin for 9MFY21 was 19.3% from 18.8% last Q2FY21 and 49th month rose to 66.9% from 66.27%. quarter. SBI Life • The 61st month rose to 61.69% from 60.87%. • The VNB degrew 5% YoY for the 9MFY21. Sequentially it • The AUM grew 28% YoY to INR 209,000 Cr. grew by 41%. • The solvency ratio was at 234%.

• The 13th month persistency was 83%, 49th month persistency • The VNB was 25.9% in 9MFY21 vs 21% last year on 59% and 61st month persistency 52%. Max Life account of change in business mix. • The AUM grew 23% to INR 85,000 Cr • The solvency ratio was 208%.

19 Earnings Review | Life Insurance | Coverage: Results Summary (3/3)

Companies Channel mix Industry Outlook / Strategy •We expect CAGR 11% between FY21-23E in gross premiums. •We expect VNB margin of 26.3% by FY23 on product mix • The mix between banca/Agency/Broker/Direct/Group was HDFC Life shift. The bank’s share of savings especially non par 25%/6%/2%/17%/50% from 23%/6%/2%/18%/51% last quarter savings augurs well. •Its focus remains on Par and non par savings is a positive.

• We expect CAGR 16% between FY21-23E in gross • The mix between banca/agency/direct/partnership/group premiums. It contributes 48% in the 9MFY21. ICICI PruLife is 42%/24%/13%/8%/13% respectively on APE basis for 9MFY21. • However, this is likely to see a change in tax regulation For the quarter, it grew 9%/26%/24%/2%/8% respectively as the budget 2021 withdrew tax exemption on redemption of ULIPs.

•We expect CAGR 14% between FY21-23E in gross premiums. •We expect VNB margin of 18.5% by FY23, gradually • The mix between banca/agency/others was 64%/24%/11% improving as its cost assumptions improve. SBI Life respectively on APE basis for 9MFY21. •The change in tax regulation in the budget 2021 of the • The same was 61%/24%/15% last quarter withdrawal of exemption on redemption of ULIPs is a negative. •Its diversified mix augurs well.

• Max financial business has grown in a healthy fashion • The proprietary and banca mix 30%/69% vs 32%/67% last coupled with improvement in VNB margins. Max Life year. • After its merger with Axis, we expect further improvement in business and synergies.

20 Earnings Review | Life Insurance | Coverage: Performance Overview (1/2)

In INR Cr. HDFC Life ICICI Prudential SBI Life Max Life Key Financial & Actuarial Metrics

New Business Premium (Individual + Group) 5,051 3,472 5,439 1,748 Renewal Premium (Individual+ Group) 4,577 5,680 8,436 2.880 Total Premium 9,628 9,152 13,874 4,628 Profit After Tax 260 306 230 220 Asset Under Management (AUM) 1,65,623 2,04,872 2,09,500 84,724 Value of New Business (VNB) 570 429 700 350 Annualized Premium Equivalent (EV) 2,160 1,666 3,500 1,210 Key Financial Ratios (%) Solvency Ratio 202% 226% 234% 208% Persistency Ratio 13th Month 89% 82% 86% 83% 61st Month 53% 59% 62% 54% VNB Margin 25.6% 25.8% 19.3% 25.9%

Source: Company Reports, Bloomberg, KRChoksey Research Earnings Review | Life Insurance | Coverage: Performance Overview (2/2)

In INR Cr. HDFC Life ICICI Pru SBI Life Max Life Key Financial & Actuarial Y-o-Y Q-o-Q Y-o-Y Q-o-Q Y-o-Y Q-o-Q Y-o-Y Q-o-Q Metrics New Business Premium 19.3% -14.0% 14.3% 17.3% 9.4% 77.8% 24.7 9.6% (Individual + Group) Renewal Premium (Individual+ 21.5% 6.2% 8.7% -1.6% 24.3% 84.0% 16.3% -1.9% Group) Total Premium 20.3% -5.4% 10.8% 4.8% 18.0% 81.5% 19.3% 2.1% Profit After Tax -16.1% -21.2% 1.2% 0.8% -41.0% -23.3% 42.9% 156% Assets Under Management 21.4% 10.0% 19.1% 12.9% 27.6% 12.4% 23.5% 9.0% (AUM)

Value of new business (VNB) 26.7% 3.6% 0.7% 7.3% 12.9% 37.3% 65.1% 7.7%

Total APE (Annualized Premium 18.0% 1.4% -18.3% 13.7% 3.6% 29.2% 20.9% 5.8% Equivalent) Key Financial Ratios Solvency Ratio 700 -100 1,889 2,060 400 -1,100 -1200 100 Persistency Ratio 13th Month -100 100 240 -130 46 25 -200 0 61st Month -200 0 330 -230 316 82 300 200

Value of New Business Margin -100 50 485 -155 100 50 490 160

Source: Company Reports, Bloomberg, KRChoksey Research Earnings Review | Our Top Sector Picks and Recommendations

HDFC Bank, SBI Bank are our top picks

Recommendation Market Cap. CMP Target Price (INR) Upside P/ BV (x) Stocks Revised Old INR Cr. INR New Old % 5 Yr. Avg. FY22 E

HDFC Bank ACCUMULATE ACCUMULATE 8,37,314 1,512 1,720 1,510 13.7% 4.4 3.8

ICICI Bank ACCUMUALTE ACCUMULATE 4,13,611 595 640 560 7.6% 2.0 2.3 Kotak Mahindra ACCUMULATE HOLD 3,75,715 1,903 2,050 1,946 7.7% 4.4 5.2 Bank Axis Bank HOLD ACCUMULATE 2,24,570 738 750 645 1.7% 2.3 2.1

SBI BUY ACCUMUALTE 3,35,610 379 450 300 18.9% 1.0 1.4 IndusInd ACCUMULATE ACCUMULATE 77,829 1,035 1100 982 6.3% 3.5 1.6 Bank Karur Vysya HOLD ACCUMULATE 4,847 60 60 50 0.8% 1.0 0.8 Bank Bandhan BUY BUY 54,204 340 457 457 34.6% 4.3 2.4 Bank

Source: Company, KRChoksey Research, CMP as of 16th March 2021

23 Earnings Review | Our Top Sector Picks and Recommendations

HDFC Ltd. is among our top picks Recommendation Market Cap. CMP Target Price (INR) Upside P/ BV (x) Stocks 5 Yr. Revised Old INR Cr. INR New Old % FY23 E Avg*. Bajaj Finance ACCUMULATE ACCUMULATE 3,25,061 5,456 5,760 5,113 5.6% 8.6 7.0

Bajaj Finserv ACCUMULATE ACCUMULATE 1,51,328 9,613 10,500 9,500 9.2% 4.4 3.1 Cholamandalam HOLD HOLD 43,739 541 550 379 1.7% 3.9 4.4 Investments HDFC AMC ACCUMULATE ACCUMULATE 62,607 2,974 3,200 3,020 7.6% 15.2 10.0

HDFC Ltd. BUY ACCUMULATE 4,53,945 2,510 3,012 2,500 20.0% 3.6 4.0 NAM UR UR 20,838 334 - - UR 5.5 UR CreditAccess BUY BUY 10,966 717 843 904 17.6% 3.6 3.0 Grameen ICICI Securities 2 BUY BUY 13,279 414 578 565 39.5% 10.6 13.0

Source: Company, KRChoksey Research, * Or since listing, CMP as of 16th March 2021

SBI Life and HDFC Life are among our top picks Market Recommendation CMP Target Price (INR) Upside P/ EV (x) Stocks Cap. Revised Old INR Cr. INR New Old % 5 Yr. Avg. FY23 E HDFC Life ACCUMULATE ACCUMULATE 1,40,993 703 790 704 12.4% 18.6 4.0

ICICI Prudential BUY ACCUMULATE 62,077 444 526 526 18.5% 8.6 2.2

SBI Life ACCUMULATE BUY 91,011 914 1,000 996 9.4% 10.3 2.2

Max Financial HOLD HOLD 29,678 876 905 657 3.3% 6.7 3.1

24 Consumer Sector

25 Earnings Review | Essentials | Summary Key Takeaways

Health and hygiene continues to drive demand

Normalcy in operations • Rural demand out pace urban and modern trade channels saw revival driven by demand for staples. • Demand for ‘out-of-home’ channels improved during the quarter. However, ready-to-eat and in-house categories remains customers preference. • The quarter also marked revival in discretionary categories and uptick in the winter portfolio.

Improvement in operating margins • Gross margin could see contraction due to rising commodity prices. • However, most of the companies under coverages has posted decent growth in the margin on YoY basis. The cost-effective measures and operational efficiency has helped the companies to maintain the margin level, despite all the headwinds. • ITC margin was higher compared other peer companies; however, margins of Britannia has witnessed growth during the quarter.

FMCG Industry trends • The overall market growths have inched up to 5%. And within this, rural and smaller towns continue to lead the growth while the metros and big cities are improving progressively. • General trade and e-commerce continue to rise the tailwinds, while modern trade is slowly mounting a comeback. • Huge spurt in online shopping – robust growth in e-com channel – clear preference for contactless shopping. • On the commodities front, there has been an unprecedented inflation, especially in tea prices and the palm oil prices, which have gone up by 40% to 50%. Earnings Review | Essentials | Coverage: Results Summary (1/6)

Companies Revenue and Segment-wise Performance • Britannia reported revenue of INR 31,656 Mn (+6.1% YoY). In Q3FY21, the general trade continues to grow at healthy pace on the back of buoyancy of rural economy and recovery in urban demand. The other channels such as modern trade, institutional business etc continues to face challenges with lower footfalls. • The management expects consumption to be normal in next couple quarters. Most of the key brands like Britannia GooDay, Bourbon, Tiger, 50-50, Nutri Choice and cake portfolio are back on track. • Factory productivity has improved to 1.07x as compared to pre-Covid level. Middle East and Africa have shown healthy growth. • The company expects increase in revenue as distribution channels are back to normal. • HUL reported healthy revenue growth of 20.6% YoY (+4.3% QoQ) at INR 121,810 Mn mainly due to growth in Beauty & Personal care and Food & refreshment segment. Domestic consumer growth (without merger GSK CH and acquisition of VWash) up by 7% YoY. • Food & Refreshment (~28% of revenue) stood out among all segments with a growth of 80% YoY. Growth was mainly propelled by surge in in-home consumption for immunity products, foods, tea and coffee which delivered HUL double digit growth. In foods, ketchups and soups performed strongly growing with high double-digits. • The Home care segment (~28% of revenue) reduced marginally 1.3% YoY due to subdued performance of Water purifier segment while Fabric wash and Domex delivered well. • Beauty & Personal segment (~40% of revenue) grew by 9.4% YoY; with robust performance across categories and strong double-digit growth in skin cleansing, hair and oral care. The skin cleansing performance was led by ‘Lifebuoy’ and double digit-growth in the premium segment. • ITC’s revenue during the Q3FY21 stood at INR 141,245 Mn (+6.1% YoY / 7.4% QoQ). The growth was mainly driven by strong recovery across all the operating segments including Cigarettes. The FMCG-Others has emerged as a game changer with double-digit growth (+13% YoY), the staples, convenience foods and hygiene products accounting ~75% of total portfolio has recorded a strong growth of 11% YoY. ITC Ltd • Share of contribution from Cigarette segment was 43% (45% in Q3FY20), FMCG segment was 27% (25% in Q3FY20), Hotel segment and Agri business contributed 2% and 19% respectively against 4% and 17% in Q3FY20 respectively to revenue and paper board and packaging segment share remained flat at 11%. • Progressive improvement in the Hotels Revenue was seen in Q3FY21.

KRChoksey Research ANALYST Phone: +91-22-6696 5555, Fax: +91-22-6691 9576 is also available on Bloomberg KRCS www.krchoksey.com Parvati Rai, [email protected], +91-22-6696 5413 Thomson Reuters, Factset and Capital IQ Earnings Review | Essentials | Coverage: Results Summary (2/6)

Companies Revenue and Segment-wise Performance

• For Q4CY20, Nestle India reported revenue growth of 9.0% YoY (-3.1% QoQ) to INR 34,326 Mn. Full year revenue increased by 8.1% to INR 133,500.3 Mn. • In Q4CY20, Domestic Sales increased by 10.1% YoY largely driven by volume & mix. However, Export Sales Nestle decreased by 7.7% YoY due to lower coffee exports. • MAGGI, KITKAT and Nescafe Classic delivered double digit growth driven by in-home consumption. Contribution from E-commerce went up significantly and demand in out of home sector is improving. • In Q3FY21, Tata Consumer Products reported healthy revenue growth of 23.1% YoY (+10.4% QoQ) at INR 30,696 Mn with volume growth across all segments. During the quarter, the International Beverages business saw steady growth across our key markets- UK, USA and Canada. Tata Starbucks has seen a strong sequential recovery with 92% of the stores now having re-opened for business. • During the quarter, the India packaged beverage business recorded 46% value growth and 10% volume growth. Tata Consumer The health and wellness portfolio in beverages were strengthened with new product launches which includes Tata Tea Gold Care, Tata Tea Tulsi Green and Tetley Green Tea immune. • Overall branded segment (~90% of revenue) growth increased 25.6% YoY. Within Branded segment, branded domestic beverage segment (~41% revenue) witnessed growth of 46% YoY, Branded India food business (~24% revenue) grew 19% YoY and Branded international beverage segment (~35% revenue) grew 8.8% YoY. Non- branded segment mix (~10% of revenue) grew 3% YoY.

Companies Margin Performance

• EBITDA margin expanded by 249bps YoY to 19.3% in Q3FY21, while EBITDA grew 21.8% YoY to INR 6,115 Mn. The company witnessed moderate cost inflation in the prices of key raw materials and expect the prices to be stable going forward given the positive outlook on monsoon and harvest. The inflation was neutralized by accelerating its cost efficiency. Britannia • Other expenses to sales stood at 19.6% in Q3FY21 compared to 20.0% in Q3FY20 and 18.8% in Q2FY21 on the back of cost efficiencies through extraction of supply chain efficiencies, reduction of wastages, fixed cost leverage and rationalization of media spends. • Reported PAT showed growth of 22.4% YoY to INR 4,558 Mn, with NPM at 14.4% (+191 bps YoY).

• EBITDA stood at INR 29,630 Mn (+10.8% YoY), with OPM at 24.3% (-215bps YoY), the contraction in margin was mainly due to higher operating expenses led by higher raw material cost, employee, and advertisement cost. The company has significantly invested in portfolio to build HUL • PAT for the quarter was at INR 19,380 Mn (+18.8% YoY), with NPM at 15.9% (-23bps YoY). • On the commodities front, the industry is witnessing unprecedented inflation, especially in tea prices and the palm oil prices, which have gone up by 40% to 50%. Despite all the headwinds, HUL with its operational efficiency and cost saving strategies has been able to maintain double-digit growth in bottom-line.

• EBITDA margin contracted 352 bps YoY/ to 33.9% while absolute EBITDA declined by 3.9% YoY/ to INR 47,850 Mn due to lower revenue and higher excise duty which increased 158% YoY. • Hotel’s business EBITDA turned positive in Q3FY21 and break-even for the quarter. ITC Ltd • FMCG-Others EBITDA grew by 28% and margins expanded by 150bps YoY to 9.2%. • The expansion in margins were due to operating leverage, enhanced operational efficiency, better product mix and portfolio premiumization. • PAT de-grew by 11.3% YoY/ to INR 35,266 Mn due to higher tax expenses.

Companies Margin Performance

• Overall, EBITDA margin contracted by 231bps YoY to 22.6% (+60 bps QoQ); employee expenses grew by 25% YoY mainly due to higher incentives paid to the employees in the view of COVID-19, apart from this, finalization of long-term compensation arrangements for most factory employees also impacted the Nestle margins. • Net Profit decreased by 17.7% YoY to INR 4,833 Mn (+2.3% QoQ) with NPM of 14.1% (-93 bps YoY; down 250 bps QoQ). Net Profit for the full year increased by 5.8% to INR 20,824.3 Mn.

• EBITDA grew 13.6% YoY to INR 3,613 Mn while EBITDA margin contracted by 99bps YoY to 11.8% due to higher operating expenses. Tata Consumer • Net Profit witnessed a significant increase mainly lower taxation rate. PAT stood at INR 2,182 Mn (+28.8% YoY), with NPM at 7.1% (+31 bps YoY). • We expect pressure to continue on margins due to rising inflation in the tea prices.

Companies Industry/Outlook/ Strategy New Launches/Market share • Capex is expected to be around INR 200 Cr for FY21. • The company launched Treat Creme Wafers at INR10 • The company also plans to invest in Hi-tech food park price point at Ranjangao with 12 new manufacturing lines and a • During the festive season, the company launched new total capacity of 140,000 TPA. variants of Diwali greeting packs – Shubhkamnayein. Britannia • Britannia is doing IT transformation project which will • The company also relaunched Pure Magic Chocolush in be concluded in next couple of quarters. Hazelnut flavour. • Focus will be on distribution, marketing, innovation and • The Company witnessed 36 quarter of straight market cost optimization. share gains in the biscuit segment.

• HUL is confidently moving ahead with a strategic • HUL launched Domex toilet cleaner with power of purpose to be future-fit. sodium hypochlorite. • HUL has also accelerated its journey in e-commerce and • HUL relaunched Surf Excel with a new variant ‘Active strengthened the execution in the traditional trade Hygiene’ known to fight tough stains and capable to through its E-RTM initiatives. remove 99.9% of viruses. HUL • The company is focusing on fundamental growth which • HUL also introduced new hygiene products in Lifebuoy. is led by purposeful brands, improved penetration, and Lifebuoy laundry sanitizer an anti-germ post wash impactful innovation. liquid. • Moving forward on account of competitive volume-led • Lifebuoy has introduced instant germ kill spray that growth. kills illness-causing bacteria and viruses instantly. • Launched 100+ products / SKUs across all segments / • Rapid capacity ramp-up (sanitizers 100x, handwash categories in 9MFY21. 4.4x, savlon soaps 4.6x) • Launched YiPPee Saucy masala Noodles in unique red • Augmented direct distribution colored noodle blocks, with a drizzle of tomato sauce. ITC Ltd • Enhanced focus on rural / stockiest channel • Sunfeast Dark Fantasy Choco Chips and Choco Nuts • High focus on fulfilling demand in top outlets, modern with a combination of cashews, almonds, and trade and e-com hazelnuts. • Presence scaled-up in chemist outlets • B-Natural immunity juice in 2 variants – Red Veggie & Tomato.

Companies Industry/Outlook/ Strategy New Launches/Market share

• The management plans to invest INR 2,600 Cr in next 3-4 years to augment its existing manufacturing capacities, Nestle • Retains market leadership in the key brands. as well as towards the new under construction ‘state-of- art’ factory in Sanand, Gujarat.

• Tata Consumer has signed definitive agreements to • Through this acquisition TCPL will be able to build a acquire 100% equity shares of Kottaram Agro Foods platform with differentiated offering in the health & (KAF), owner of the brand 'Soulfull', for a consideration wellness space which has an estimated market size of of INR 156 Cr. INR 20,000 Cr. • This move is consistent with TCPL's strategic intent to • The acquisition is in line with the core category of ‘For Tata expand its product portfolio and participate in multiple Better’ food products offered by TCPL. Consumer consumption occasions. Kottaram Agro Foods makes • It will also give access to a fast-growing brand with a new breakfast cereals under the brand Soulfull. The company addressable target group. had clocked a turnover of INR 39.38 crore for FY20 as • It will also expand the portfolio of TCPL into new compared with INR 21.58 crore for FY19 and INR 11.08 categories like cereals, mini meals, healthy snacks, crore for FY18. protein drinks etc.

ITC margin was higher compared other peer companies

Particulars (INR Mn) Britannia HUL ITC Nestle Tata Consumer Sales 31,656 121,810 141,245 34,326 30,696 Total Expenditure 25,541 92,180 93,395 26,555 27,082 Cost of Raw Materials 15,453 36,560 35,323 14,885 13,926 Purchase of Stock 2,344 18,030 15,820 456 5,284 Changes in Inventories 218 1,390 1,228 (1,296) -114 Employee Cost 1,318 5,910 11,435 4,033 2,412 Other expenses 6,209 30,290 29,588 8,478 5,574 EBITDA 6,115 29,630 47,850 7,770 3,613 EBITDA Margin (%) 19.3% 24.3% 33.9% 22.6% 11.8% Depreciation 486 2,860 4,135 955 644 EBIT 5,629 26,770 43,715 6,815 2,969 Interest Expense 318 440 126 420 181 Other Income 826 540 5,457 306 195 PBT 6,137 26,870 49,046 6,702 2,983 Exceptional Items 0 -510 0 0 -61 Tax 1,611 6,980 13,174 1,869 552 Share of Associates/Minorities 31 0 607 0 -189 PAT 4,558 19,380 35,266 4,833 2,182 PAT Margin 14.4% 15.9% 25.0% 14.1% 7.1% EPS 19.0 9.0 2.87 50.12 2.4

Source: Company, KRChoksey Research

Performance of all the essential companies were better during the quarter due to recovery in demand

Particulars Britannia HUL ITC Change % QoQ YoY QoQ YoY QoQ YoY Sales -7.4% 6.1% 4.3% 20.6% 7.4% 6.1% Total Expenditure -6.9% 3.0% 5.3% 24.1% 6.8% 12.1% Cost of Raw Materials -14.7% -2.2% -14.6% 26.4% -2.9% -7.7% Purchase of Stock -10.4% 17.9% 25.0% 14.6% 35.6% 117.0% Changes in Inventories -120.0% -247.1% -160.7% 826.7% -390.3% -5.9% Employee Cost -2.0% 8.4% 0.5% 21.4% 6.8% 5.4% Other expenses -3.6% 4.4% 13.1% 23.1% 1.5% 15.7% EBITDA -9.5% 21.8% 1.3% 10.8% 8.7% -3.9% EBITDA Margin (%) -44 bps 249 bps -71 bps -215bps 40 bps -352 bps Depreciation 0.2% 4.0% 7.9% 15.3% 2.2% -5.4% EBIT -10.2% 23.6% 0.6% 10.3% 9.4% -3.7% Interest Expense 6.6% 34.3% 41.9% 63.0% -5.0% 10.3% Other Income 12.3% 26.7% -41.9% -48.6% -6.3% -16.4% PBT -8.5% 23.5% -1.3% 7.3% 7.4% -5.3% Exceptional Items 0.0 0.0 -38.6% -79.3% NM NM Tax -7.9% 26.6% 5% 11.1% 14.9% 31.6% Share of associates -20.4% 13.8% - - 20.1% -16.1% PAT -8.8% 22.4% -1.8% 18.8% 4.7% -11.3% PAT Margin -21 bps 191 bps -99 bps -23bps -65 bps -491 bps

Source: Company, KRChoksey Research

Performance of all the essential companies were better during the quarter due to recovery in demand

Particulars Nestle Tata Consumer Change % QoQ YoY QoQ YoY Sales -3.1% 9.0% 10.4% 23.1% Total Expenditure -0.1% 8.2% 13.7% 24.5% Cost of Raw Materials 7.3% 1.3% 15.3% 47.1% Purchase of Stock 43.8% -19.7% 1.8% 13.3% Changes in Inventories -300.0% -21.4% -85.9% 116.3% Employee Cost 9.1% 25.2% 5.0% 9.9% Other expenses 5.4% 9.9% 26.0% 4.1% EBITDA -12.1% 12.0% -9.6% 13.6% EBITDA Margin (%) -231 bps 60 bps -260 bps -99 bps Depreciation 4.8% 2.1% 2.9% 4.8% EBIT -14.0% 13.5% -11.9% 15.7% Interest Expense 3.8% 34.9% 1.2% -10.1% Other Income -11.2% -31.5% -25.7% -31.7% PBT -14.8% 9.1% -13.6% 12.5% Exceptional Items - - -74.4% NM Tax -6.3% 32.1% -36.7% -26.5% Share of associates - - -183.0% -5.1% PAT -17.7% 2.3% -15.1% 28.8% PAT Margin -250 bps -93 bps -213 bps 31 bps

Source: Company, KRChoksey Research

Personal and Home Care witnessed volume momentum

• Normalcy in operations • Production has started in phased manner. • The sector witnessed volume momentum. • Key brands has maintained its market share. • Increase in investment in brands with higher ads spend to support innovation.

• Improvement in operating margins • Most of the companies under coverages has posted decent growth in the margin on YoY basis. The cost-effective measures and operational efficiency has helped the companies to maintain the margin level, despite all the headwinds. • Colgate and Emami’s margin was higher compared other peer companies, however, margins of GCPL has witnessed growth during the quarter.

• FMCG Industry trends • The overall market growths have inched up to 5%. And within this, rural and smaller towns continue to lead the growth while the metros and big cities are improving progressively. • General trade and e-commerce continue to rise the tailwinds, while modern trade is slowly mounting a comeback. • Huge spurt in online shopping – robust growth in e-com channel – clear preference for contactless shopping. • A lot of penetration has witnessed in the Household Insecticide category in terms of consumer demand of wanting to be healthier. However, the penetration is still lower in the premium categories.

Companies Revenue and Segment-wise Performance

• During the quarter Colgate reported revenue of INR 12,319 Mn (+74% YoY / -4.2% QoQ). Domestic net sales for the quarter reported 10.1% YoY growth. For 9MFY21, revenue stood at INR 35,355 Mn (+3.2% YoY). Colgate • The growth was mainly led by recovery in demand and better performance of new product launches. In this quarter, Colgate saw broad based growth across categories unlike previous quarter.

• Godrej Ltd reported double-digit revenue growth of 10.0%YoY (+4.8% QoQ) at INR 30,554 Mn. Growth on sequential basis was on account of excellent growth in Household Insecticides and Hygiene business which are value for money products. The HI business delivered 7% growth in India and 5% globally. Godrej • Domestic sales (~54% of total sales) grew 11% YoY while volume grew at 7% YoY led by resurgence in Soaps, Hair Consumer Colour and Household insecticides and scale of up of hygiene. Indonesian business declined marginally by 2% YoY, Products Ltd while US, Africa and the Middle East and LATM grew by 17% and 35% YoY respectively. (GCPL) • Segment wise, household insecticides business, including Goodknight and incense sticks (~85% of revenue) reported a growth of 7% YoY. Soaps outperformed all other segments by delivering 15% growth YoY, while hair colours too reported a significant growth of 14% YoY.

• In Q3FY21, Emami reported revenue growth of 14.9% YoY (+27% QoQ) to INR 9,340 Mn. against our estimates of Emami Ltd INR 8,179 Mn. The growth was on account of double-digit volume growth in the domestic business.

Companies Margin Performance

• EBITDA stood at INR 3,706 Mn (+17.3% YoY), with OPM at 30.1% (+253bps YoY) margin expanded to 31.8% in Q2FY21 (from 26.4% last year) primarily benefit from lower operating expenses. Raw materials stood at 25.8% of sales (- 614bps YoY / -269bps QoQ). The continues investment in brands with higher advertising spends to support Colgate innovation and continued efforts to amplify efficiencies across operations has helped delivered strong margins. • Net Profit stood at INR 2,484 Mn (+247% YoY), with NPM at 20.2% (+280bps YoY). For 9MFY21, Net profit stood at INR 7,207 Mn (+17.7% YoY). The margin expansion was mainly due to lower depreciation and interest cost.

• EBITDA margin was stable at 22.7% in Q3FY21 mainly due to scale deleverage. Decline in raw material cost (~40% to GCPL sales vs 45% to sales in Q2FY21) also contributed to growth in EBITDA margin. • Net Profit margin for the quarter expanded by 41 bps YoY (+ 70bps QoQ) to 16.4%.

• During the quarter the EBITDA stood at INR 3406 Mn (+29% YoY / +32.5% QoQ), with OPM at 36.5% (+398bps YoY / +148 bps QoQ), the margin expansion was mainly due to lower raw material cost (-140bps YoY/-419bps QoQ) as Emami Ltd well as employee cost which reduced by 100bps YoY and 245 QoQ. • PAT stood at 2,094 Mn (+43.5% YoY / 76.7% QoQ), with NPM at 22.4% (+447bps YoY / +630bps QoQ) mainly due to lower depreciation, interest cost and tax expenses.

Companies Industry/Outlook/ Strategy New Launches/Market share • Colgate recently launched Asia’s first Toothpaste for Diabetics. Its unique formula harnesses the • The company’s strategic and disciplined approach to goodness of Ayurvedic ingredients helping building brands, driving innovation & relentless focus on diabetics to keep their gums strong and healthy. winning on the ground continues to deliver growth. • It has also expanded its Naturals toothbrush • The company continue to invest in its brands with higher Colgate portfolio with the launches of Super Flexi Salt and advertising spends to support innovations. Zig Zag Turmeric. • The continued efforts to amplify efficiencies across • It has launched Colgate Magik, a first of its kind operations have helped deliver strong gross margins, augmented reality toothbrush that completely EBITDA and NPAT growth. transforms toothbrushing time into a fun adventure. • New launches in Health scaling up well • 81% of GCPL’s global portfolio comprises household • Goodknight Gold Flash liquid vaporiser continues insecticides, hygiene and value for money products, to receive an excellent response post the national delivering 14% growth. scale up Godrej • Strong growth led by soaps and sharp recovery in hair color. • Market share gains in HI, soaps, hair color Consumer • Doubling down on chemists and e-commerce, ramping up continues in Indian as well as Indonesia Market. rural distribution. • Launched Saniter health soaps that provides 99.9% • Second consecutive quarter of double-digit sales –growth of protection from germs and viruses. 17% in Africa, USA and Middle East market. • Launched the Darling range of hair extensions in the UAS with Walmart. • Cost reduction helped maintain cash profits (despite lower • Navratna market share – 66% sales). It also improved gross margins and cash profit • Zandu & Menthol Plus Balms market share – 55% margins. • Boro Plus market share – 74% • International revenues grew 16%. Third party manufacturing Emami Ltd • Fair & Handsome crème market share – 65% initiated in Sri Lanka. • Kesh King oil market share – 27% • MT and e-com channels contribution +9% (+150bps YoY) • Navratna Cool Talc market share – 26% • Direct reach increased from 6.4 lac outlets in FY16 to 9.4 lac • Fair & Handsome face wash market share – 12% outlets in FY20.

Colgate & Emami’s margin was higher compared GCPL

Particulars (INR Cr) Colgate GCPL Emami

Sales 12,319 30,554 9,340 Total Expenditure 8,613 23,620 5,934 Cost of Raw Materials 3,173 12,107 2,181 Purchase of Stock 648 1,112 509 Changes in Inventories -96 514 76 Employee Cost 869 2,865 767 Other expenses 4,019 7,022 2,401 EBITDA 3,706 6,935 3,406 EBITDA Margin (%) 30.1% 22.7% 36.5% Depreciation 456 491 944 EBIT 3,251 6,444 2,462 Interest Expense 19 241 14 Other Income 99 150 92 PBT 3,330 6,353 2,540 Exceptional Items 0 -65 0 Tax 847 1,400 438 Share of Associates/Minorities 0 2 -9 PAT 2,484 5,021 2,094 PAT Margin 20.2% 16.4% 22.4% EPS 9.1 4.91 4.7 Source: Company, KRChoksey Research

Performance of all the companies were better during the quarter due to recovery in demand

Particulars Colgate GCPL Emami Change % QoQ YoY QoQ YoY QoQ YoY Sales -4.2% 7.4% 4.8% 10.0% 27.1% 14.9% Total Expenditure -1.7% 3.6% 5.3% 10.0% 24.2% 8.2% Cost of Raw Materials -13.2% -13.3% -7.0% 13.6% 7.8% 8.4% Purchase of Stock -37.6% 0.3% 14.6% 44.1% 1.1% 210.9% Changes in Inventories -84.0% -74.4% -144.3% -13.7% -122.0% -81.4% Employee Cost -10.1% 12.8% 7.4% 6.6% -2.1% 2.5% Other expenses 8.6% 11.3% 1.4% 3.8% 32.8% 11.4% EBITDA -9.5% 17.3% 3.1% 10.0% 32.5% 29.0% EBITDA Margin (%) -176 bps 253 bps -39bps -1bps 148 bps 398 bps Depreciation -1.2% -11.5% -3.6% 0.1% -17.8% 10.3% EBIT -10.5% 22.9% 3.6% 10.8% 73.1% 38.0% Interest Expense 30.5% 70.3% -23.3% -49.6% -44.8% -72.2% Other Income 3.8% -35.3% 7.8% -36.1% 16.6% -40.9% PBT -9.7% 24.5% 6.1% 16.0% 72.0% 34.3% Exceptional Items 0 0 0 0 NM NM Tax -10.6% 23.9% -4.3% 29.1% 54.2% 9.9% Share of associates 0 0 NM NM 8.9% 437.5% PAT -9.4% 24.7% 9.5% 12.8% 76.7% 43.5% PAT Margin -117 bps 280 bps 70bps 41bps 630 bps 447 bps

Source: Company, KRChoksey Research

Improved sentiments leads to demand recovery •The consumer durable sector has witnessed encouraging demand recovery and has almost scaled up to the pre-covid level. •This was mainly driven by a better festive season and improved customer buying sentiments supported by a more stable business environment. •There was more focus on infrastructure sector such as metro railways, electrical substations which are expected to offer immediate growth opportunities. •Under the Atmanirbhar Bharat program the Government of India has announced Production Linked Incentive (PLI) scheme for Air Conditioners and components. •The incentive is payable on incremental sales based on the investment similar to the scheme applicable to mobile phones. Pressure on operating margin continues •Higher revenue, backed by Cost control measures partially offset by a higher change in inventory resulting in improvement in margin for Blue Star Ltd. •Margins of Whirlpool was impacted due rising inflation in the commodity prices. •Symphony has succeeded on protecting its gross margin % in India, Impco-Mexico and GSKChina despite steep rise in input cost and challenges of Covid19. This has materialised due to cost rationalisation and launch of new innovative models. Corporate outlook •Whirlpool is expanding distribution reach, entering new product categories, and expanding capacity in core products to recover and grow its business. •A huge investments in manufacturing sector consequent to the domestic demand growth and localization under the Atmanirbhar Bharat program. •Symphony leverages a unique and successful asset-light business model for its residential coolers in India and in-house lean manufacturing for its industrial coolers in Mexico to achieve sustainable and profitable growth. New product launches and Market share •Whirlpool India gained market share during the quarter. •Blue Star increased its market share in Air Conditioners, while it is looking to grow in water purifiers.

Companies Revenue and Segment-wise Performance

• Blue Star reported revenue decline of 9.1% YoY (+ 24.6% QoQ) at INR 11,239 Mn in Q3FY21. • In terms of segment, Revenue of the Electro-Mechanical Projects and Commercial Air Conditioning Systems segment (~60% of revenue) stood at INR 5,855 Mn; down by 22.8% YoY / up by 8.3% QoQ; segment witnessed saw a gradual recovery with a major order from the infrastructure segment. The Commercial Air Conditioning Blue Star Ltd business recovery was attributed to Healthcare, Pharma and Government sectors. • Unitary Products revenue (~35% of revenue) increased 17.3% YoY/+54.7% QoQ to INR 4,923 Mn while Professional Electronics and Industrial Systems Business (~5% of revenue) registered a sharp revenue decline of 20%YoY/ +6.5% QoQ to INR 454 Mn.

• Whirlpool reported revenue growth of 17.5% YoY (down 6.6% QoQ) at INR14,940 Mn. The double-digit growth Whirlpool India was on account of higher volume growth and pent-up demand during the festive season. • Symphony Ltd. reported total revenue from operations of INR 216 Mn, decline of 25.5% YoY demand improved post easing of lockdown . Stocking up by channels ahead of the upcoming summer season and market share gains from unorganised players are expected to drive growth in the near term. Symphony Ltd • Exports are expected to grow exponentially over the next 2-3 years once the company’s Australia and US business commence operations on a full scale.

Companies Margin Performance

• EBITDA margin expanded 264 bps YoY/ 115 bps QoQ to 7.3% in Q3FY21 while EBITDA grew by 43% YoY to INR 816 Mn. Improvement in profitability across business segment was mainly driven by cost realization Blue Star Ltd measures. • Reported PAT increased significantly by 96.7% YoY; however, improved drastically sequentially. Net Profit margin for the quarter grew by 172 bps YoY/+ 154 bps QoQ to 3.2%.

• EBITDA margin contracted 32bps YoY/down 459bps QoQ to 6.7% in Q3FY21 while EBITDA grew by 12.2% YoY/down 44.5% QoQ to INR 1,006 Mn mainly due to moderate revenue growth and high raw material cost, employee cost and other expenses. Cost of materials grew by 52.9% YoY due to rise in prices of Whirlpool India commodities. • PAT decline by 6.7%YoY to INR 714 Mn while Net Profit margin for the quarter contracted by 124 bps YoY/364 bps to 4.8% due to higher interest expenses (+120% YoY/+615% QoQ). • EBITDA declined by 51% YoY to INR 33 Cr due to other revenue. EBITDA margin decreased by 810 bps YoY to 15.3% due to higher local purchases, higher input cost and higher freight expenses in the Australian subsidiary. Symphony Ltd • PAT declined by 47% YoY to INR 27 Cr owing to decreased in other income to INR 9 Cr and higher depreciation. Adjusted for exceptional items, PAT registered a decent increase of 17.4% QoQ.

Companies Industry/Outlook/ Strategy New Launches/Market share

• The revival of revenue which started in Q2FY21 with the festival season continued in Q3FY21. • In the Electro-Mechanical projects business, BSL continue • Blue star’s overall YTD market share stood at 13% as on Dec to prioritize its project execution based on assessment of 2020. customer credit profile and operating cash flow visibility. • Water Purifiers, Air Purifiers and Air Coolers are performing Blue Star • BSL witnessing huge investments in mfg sector consequent well in line with the plans and it continued to gain market Ltd to the domestic demand growth and localization under the share. Atmanirbhar Bharat program. • VRF market share stands at 19.5% and is 2nd largest player in • Growth momentum expected in the Room-AC and it, while Chiller market share stands at 25-30%. Commercial Refrigeration businesses to continue in the coming quarters.

• The strong momentum continued in this quarter and the company witnessed further acceleration with double digit revenue growth and healthy underlying profitability during the festive season. • The company continue to foresee a very robust demand for Whirlpool • Whirlpool had been benefitted of market share gain. appliances. The quarter saw rapid growth trajectory in India Metros and Tier 2/3 cities. • Overall, there has been improvement in penetration of the durable’s category and with a strong pipeline of consumer relevant innovations, the company is very optimistic about its short- and medium-term prospects.

• Company’s international operations have been gradually • Meanwhile though its sales remained impacted in its moving back to normalcy. Its Australian subsidiary Climate Mexico (IMPCO) and China (GSK) operations, the gross Symphony Technologies’ topline for the first nine months is up 1% YoY, margins and contribution margins have improved in both Ltd even as profitability remains impacted owing to higher locations during the current quarter. input, freight and labour costs.

Whirlpool margin was higher compared to Blue Star and Symphony

Particulars (INR Cr) Blue Star Whirlpool Symphony

Sales 11,239 14,940 2160 Total Expenditure 10,423 13,934 1910 Cost of Raw Materials 6,872 9,108 650 Purchase of Stock 3,152 885 690 Changes in Inventories (1,501) -529 (140) Employee Cost 1,045 1,684 270 Other expenses 855 2,786 650 EBITDA 816 1,006 250 EBITDA Margin (%) 7.3% 6.7% 11.57% Depreciation 259 351 60 EBIT 557 655 190 Interest Expense 149 68 20 Other Income 81 284 90 PBT 488 870 259 Exceptional Items 0 0 0 Tax 130 227 70 Share of Associates/Minorities 1 70 0 PAT 360 714 270 PAT Margin 3.2% 4.8% 12.55 EPS 3.82 5.6 3.9 Source: Company, KRChoksey Research

Performance of Whirlpool is better as compared to Blue star and Symphony

Particulars Blue Star Whirlpool Symphony Change % QoQ YoY QoQ YoY QoQ YoY Sales 24.6% -9.1% -6.6% 17.5% 13.1% -25.5% Total Expenditure 23.1% -11.6% -1.8% 17.9% 16.5% -15.9% Cost of Raw Materials 40.5% -10.9% 0.8% 52.9% 51.2% 3.2% Purchase of Stock 269.0% 78.9% 57.6% 205.9% 27.8% 6.2% Changes in Inventories -241.6% 774.1% NM -136.8% -240.0% 75.0% Employee Cost 15.1% -17.1% 12.1% 14.3% 3.8% 0.0% Other expenses 13.1% -30.0% 1.5% 4.7% 132.1% 62.5% EBITDA 48.1% 43.0% -44.5% 12.2% -7.4% -60.3% EBITDA Margin (%) 115 bps 264 bps -459 bps -32 bps -257 bps -990 bps Depreciation 25.6% 16.0% -17.2% 19.6% 20.0% 100.0% EBIT 61.5% 60.4% -52.8% 8.6% -13.6% -68.3% Interest Expense -16.4% 97.6% 615.8% 120.1% -50.0% 0.0% Other Income 38.1% 32.8% -18.6% -28.1% 12.5% -10.0% PBT 117.4% 54.2% -49.6% -10.0% -0.4% -61.9% Exceptional Items NM NM NM NM -100.0% 0.0% Tax 74.7% 8.3% -48.5% -3.3% 75.0% -68.2% Share of associates -420.5% -19.4% NM NM NM NM PAT 140.1% 81.1% -47.0% -6.7% 80.0% -47.1% PAT Margin 154 bps 160 bps -364 bps -124 bps 465 bps -495 bps

Source: Company, KRChoksey Research

Demand Recovery in Paints and Retail sector

Normalcy in operations • Production has started in phased manner. • The sector witnessed volume momentum. • Key brands has maintained its market share.

Improvement in operating margins • Most of the companies under coverages has posted decent growth in the margin on YoY basis. The cost-effective measures and operational efficiency has helped the companies to maintain the margin level, despite all the headwinds. • Asian Paint’s margin was higher compared other peer companies, however, margins of Berger Paints and Avenue Supermarts has witnessed growth during the quarter. • Gross margins for the quarter better than last year supported by lower prices and good work on driving sourcing / formulation efficiency.

Industry trends • Strong growth in Paint market in Q3 following a positive Q2; led by continued strong growth in tier 2 / 3 / 4 markets. • Strong growth in Projects and large institutional sales. • Strong growths in the Premium and Luxury range across regions well supported by Smartcare & Economy range Increase in digital option by traditional trade. Modern trade footfalls lower as consumer prefer e-com stores.

Companies Revenue and Segment-wise Performance

• Asian Paints delivered robust Q3FY21 results; beats our estimates on both the revenue and PAT front. • On consolidated basis, Asian Paints reported revenue growth of 25.2% YoY / 26.9% QoQ to INR 67,885 Mn. The growth was attributed to broad based recovery across Decorative segment and other business. During the Asian Paints quarter, the company recorded a double-digit volume growth of 33%. • International business revenue grew by 22.4% YoY at INR 7,000 Mn and PBT at INR 740 Mn (+171% YoY) • On a segmental basis, Paints (~98% revenue) grew 25.3% YoY/ 26.8% QoQ to INR 66,351 Mn and Home improvement revenue up by 21% YoY / (up by 30% QoQ) to INR 1,534 Mn in Q3FY21.

• Berger Paints reported revenue growth of 24.9% YoY (+21.6% QoQ) to INR 21,182 Mn against our estimates of INR 2,1009 Mn. Berger Paints • The growth was mainly due to revival in demand and gradual lifting-up of lockdown restriction in major parts of the country. Decorative business showed an improved performance after the COVID affected first quarter. General Industrial and Protective Coatings business line also showed improved performance for the quarter.

• Consolidated Revenue from operations grew by 42.1% QoQ / (+10.8% YoY) to INR 75,420 Mn in Q3FY21 on account of ease in lockdown restrictions and gradual recovery noted. • The overall sales and sales mix are trending close to pre-Covid levels, expect for specific segments. Apparel, Avenue Laundry, Footwear, Travel and such other relevant out of home usage categories are still taking more time to Supermarts recover. • During Q3FY21, 2 and 2+ year old DMart stores did 96% of the sales. • Besides, discretionary consumption also showed early signs of recovery and did better compared to last quarters.

Companies Margin Performance

• Overall, Q3FY21 EBITDA margin improved sharply by 439 bps YoY / 269 bps QoQ to 26.3% on the back of soft raw material prices, better product mix, favorable foreign currency and cost optimization measures Asian Paints undertaken over the period. • Q3FY21 Net Profit up by 60% YoY / 49% QoQ to INR 12,383 Mn with NPM of 18.2% (+414 bps YoY) due to the lower base effect of tax in the previous period.

• Overall, EBITDA margin expanded by 212bps YoY to 19.6% (+35 bps QoQ) indicating an improvement in the cost efficiencies annually and sequentially. EBITDA witnessed significant jump of 40% YoY / 24% QoQ to INR 4,150 Mn. Berger Paints • Net Profit increased by 50.7% YoY to INR 2,748 Mn (+24.4% QoQ) with NPM at 13.0% (+222 bps YoY). • Raw material consumption as a percentage of sales improved over corresponding quarter last year mainly on account of decline in raw material prices but was offset partially by the decorative paint price decreases. • Q3FY21 Gross profit margin stood at 15.5% (14.5% in Q2FY21 / 15.3% in Q3FY20) as sale of low margin FMCG and staples demand remains robust. • EBITDA improved sequentially by 109.1% QoQ and 15.5% YoY to INR 6,891 Mn; additionally, EBITDA margin Avenue Supermarts expanded by 293 bps QoQ and 33 bps YoY. • Net Income improved 125.1% QoQ and 16.4% YoY) to INR 4,4470 Mn. PAT margin grew 219 bps QoQ 26 bps YoY to 5.9%. • Basic EPS for Q3FY21 stood at INR 6.9 per share as compared to INR 6.1 for Q3FY20.

Companies Industry/Outlook/ Strategy New Launches/Market share

• Q4 demand conditions expected to be strong with strong recovery in consumer sentiments. • With view to strengthen its presence as household • Roll-out of Covid vaccination program augurs well for the names company has foray into other décor domestic demand recovery to become broad-based and segment like Lighting, Furnishing& furniture. well entrenched. Asian Paints • Company has launched 1500+ SKUs across three • Raw Material prices already seeing a sharp inflation – need brand: Nilaya, Royale and Ador. With foraying into to see if prices sustain at the higher levels, before any this segment its home improvement category is impact on product prices. expected to report healthy growth going forward. • Focus on cost optimization and expenses shall be restricted only for critical requirements.

• D-Mart follows Everyday low cost - Everyday low price (EDLC- • 1 stores was added in Q3FY21 EDLP) strategy which aims at procuring goods at competitive Avenue • 9 stores were added in 9MFY21 and 2 were closed price, using operational and distribution efficiency and Supermarts and converted into Fulfillment Center for our E- thereby delivering value for money to customers by selling at Commerce Business in 9MFY21 competitive prices.

Asian Paints margin was higher compared to Berger Paints and Avenue Supermarts

Particulars (INR Mn) Asian Paints Berger Paints Avenue Supermarts Sales 67,885 21,182 75,420 Total Expenditure 50,006 17,032 68,529 Cost of Raw Materials 28,891 10,904 0 Purchase of Stock 5,948 1,953 63,859 Changes in Inventories 2,446 -1,045 -133 Employee Cost 3,883 1,281 1,393 Other expenses 8,839 3,939 3,410 EBITDA 17,879 4,150 6,891 EBITDA Margin (%) 26.3% 19.6% 9.1% Depreciation 1,932 529 1,137 EBIT 15,947 3,621 5,754 Interest Expense 211 89 113 Other Income 979 156 453 PBT 16,715 3,689 6,094 Exceptional Items 0 0 0 Tax 4,314 949 1,625 Share of Associates/Minorities (18) 8 0 PAT 12,383 2,748 4,470 PAT Margin 18.2% 13.0% 5.9% EPS 12.91 2.8 6.9 Source: Company, KRChoksey Research

Performance of Asian Paints & Berger Paints is better as compared to Avenue Supermarts

Particulars Asian Paints Berger Paints Avenue Supermarts Change % QoQ YoY QoQ YoY QoQ YoY Sales 26.9% 25.2% 21.6% 24.9% 13.5% 23.9% Total Expenditure 22.4% 18.2% 21.0% 21.7% 31.4% -9.9% Cost of Raw Materials 9.2% 25.3% 45.3% 42.3% - - Purchase of Stock 42.7% 41.3% -21.8% 54.0% 1.3% 17.9% Changes in Inventories -375.2% -32.6% 3036.6% -194.4% -158.2% -1062.2% Employee Cost 2.5% 13.2% 12.2% 22.4% 6.3% 26.2% Other expenses 20.8% 10.6% 32.9% 35.4% 11.7% 18.9% EBITDA 41.3% 50.3% 23.8% 40.1% 15.1% 30.8% EBITDA Margin (%) 269 bps 439 bps 35 bps 212 bps 12bps 47bps Depreciation -0.2% -2.0% -1.6% 9.5% 4.0% 66.2% EBIT 48.8% 60.7% 28.6% 46.0% 17.2% 26.2% Interest Expense 3.0% -12.2% -18.7% -29.9% -8.6% 7.7% Other Income 18.5% 40.2% -32.7% 9.4% -21.7% -19.7% PBT 47.4% 61.0% 25.6% 47.8% 17.5% 25.9% Exceptional Items NM NM NM NM NM NM Tax 46.9% 55.4% 32.4% 48.9% 14.6% -25.2% Share of associates -81.9% -144.8% -169.5% NM - - PAT 49.1% 62.0% 24.4% 50.7% 18.2% 53.3% PAT Margin 272 bps 414 bps 29 bps 222 bps 24bps 112bps

Source: Company, KRChoksey Research

Our top picks are ITC Ltd, Hindustan Unilever, Nestle India and Britannia Industries Recommendation Market Cap. CMP Target Price (INR) Upside PE (x) Stocks Revised Old INR Cr. INR New Old % 5 Yr. Avg. FY23E

Britannia Industries BUY BUY 83,505 3,489 4,125 4,125 18.2% 58.8 47.3

Nestle India BUY BUY 1,58,795 16,742 19,640 19,640 17.3% 79.0 62.2

ITC Ltd. ACCUMULATE BUY 2,58,488 208 228 228 9.7% 30.1 13.8

Hindustan Unilever BUY BUY 5,22,424 2,244 2,719 2,556 21.2% 62.1 66.2

Tata Consumer Products UR UR 55,874 611 UR UR UR 51.4 UR

Colgate Palmolive India ACCUMULATE ACCUMULATE 43,734 1,613 1,721 1,622 6.7% 47.2 43.5

Godrej Consumers ACCUMULATE ACCUMULATE 67,893 681 781 735 14.7% 52.3 37.5

Emami Ltd. UR UR 21,557 488 UR UR UR 76.7 UR

Blue Star ACCUMULATE ACCUMULATE 8,428 896 986 901 10.1% 45.2 55.1

Whirlpool India UR UR 30,551 2,398 UR UR UR 54.2 UR

Symphony REDUCE ACCUMULATE 8,839 1,293 1,230 922 -4.9% 60.2 48.0

Asian Paints ACCUMULATE ACCUMULATE 2,33,210 2,469 2,584 2,310 4.7% 64.6 54.2

Berger Paints UR UR 70,030 728 UR UR UR 69.1 UR

Avenue Supermarts UR UR 1,98,919 3,071 UR UR UR 117.6 UR

Note: UR – Under Review Source: Company, KRChoksey Research, CMP as of 16th March 2021

KRChoksey Research ANALYST Phone: +91-22-6696 5555, Fax: +91-22-6691 9576 54 is also available on Bloomberg KRCS www.krchoksey.com Parvati Rai, [email protected], +91-22-6696 5413 Thomson Reuters, Factset and Capital IQ Cement Sector

55 Earnings Review | Cement | Summary Key Takeaways

Infrastructure witnessed growth momentum across all parts of India • Individual home builder has seen an increase in demand during the quarter in Northern, Central, Western parts of India. • Infrastructure witnessed growth momentum during the quarter. • Robust growth in Rural housing continues to support the demand growth. While there was a recovery in urban housing in Tier 2 and 3 cities. • Driven by rapid urbanization demand for cement in CY21 is expected to grow by 15-17% . • Government emphasis on increased spending on infrastructure and affordable housing will support cement demand and consumption going forward. Infrastructure and housing activity pickup resulted in revenue growth in Q3FY21 • Our Cement coverage saw revenue growth of 12.4% YoY / 15.4% QoQ in Q3FY21, led by volume growth of 6.7% YoY / 14.2% QoQ. • In Q3FY21, volume growth was reported by Shree Cement (14.6% YoY / 9.6% QoQ) and Ultratech Cement (9.2% YoY / 13.8% QoQ), while it declined YoY for ACC and Ramco. ACC reported volume decline of 0.6% YoY ( up 18.8% QoQ) and Ramco reported volume decline of 8.2% YoY (up 17.9% QoQ). Revenue growth and cost reduction supported EBITDA margin • EBITDA grew 44.1% YoY / 7.9% QoQ, while EBITDA margin expanded 535 bps YoY (down 172 bps QoQ) on account of various cost control measures. PAT margin expanded 622 bps YoY / 260 bps QoQ. • Realizations increased 5.9% YoY (-2.1% QoQ) , while EBITDA/t for coverage universe improved by 37.9% YoY (-12.1%QoQ). Earnings Review | Cement | Coverage: Results Summary (1/2)

Companies Revenue Volume • Consolidated revenue rose 17.4% YoY / 18.0% QoQ in

Q3FY21 to INR 12,254 Cr. Rural markets penetration • Consolidated cement sale volume improved 9.2% increased by ~3.5% YoY. Ultratech Cement YoY / 13.8% QoQ to 22.8 Mn T, led by strong demand • Realizations grew 3.7% QoQ and 7.5% YoY in Q3FY21. from rural market. • Capacity utilization for Q3FY21 stood at ~80% up by 11

YoY%. • Cement volume for the quarter was 2.61 MnT a growth of 17.9% QoQ and decline of 8.2% YoY. • The Ramco cement reported Revenue growth of • The sale volume in the current quarter is impacted 4.8% YoY/6.5% QoQ to INR 1,339 cr in Q3FY21. Ramco Cement due to extended and above normal monsoon in • Cement realization improved 13.4% YoY (-7.7% QoQ) Tamil Nadu, Kerala, Karnataka, AP and Telangana. in Q3FY21, due to the stability in cement prices. The company has registered good growth in its eastern markets. • Revenue rose 12.6% YoY (up 9.0% QoQ) to INR 3,541 Cr. • Volume grew 14.6% YoY / 9.6% QoQ to 7.16 MT in Shree Cement • Realization declined 1.7% YoY / 0.6% QoQ , while Q3FY21. EBITDA/t grew 11.7% YoY / 2.7% QoQ. • Revenue grew 2.1% YoY / 17.2% QoQ to INR 4,145 crs in Q4CY20. Cement revenue grew 4.6% YoY / 14.9% • Cement volume declined 0.6% YoY at 7.7Mnt (+18.8% QoQ (~93% of revenue). QoQ) in Q4CY21 ACC* • Cement realization grew 5.3% YoY (down 3.3% QoQ), • RMX volume reported a 21.5% YoY decline (up 58.7% while RMX realization grew 2.5% YoY / 0.3% QoQ in QoQ) Q4CY20.

Note: * stands for closing as per Calendar Year

ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576 Parvati Rai, [email protected], +91-22-6696 5413 is also available on Bloomberg KRCS www.krchoksey.com Thomson Reuters, Factset and Capital IQ Earnings Review | Cement | Coverage: Results Summary (2/2)

Companies Margin Outlook

• EBITDA for the quarter rose 56.4% YoY / 14.7% QoQ to • The 14.6 MT cement plants acquired during the INR 3,094 Cr. EBITDA margin expanded 630 bps YoY previous financial year have been well integrated (down 72 bps QoQ) to 25.3% in Q3FY21. Ultratech Cement and operating with capacity utilizations of over 80%. • Reported Net Profit grew 122.6% YoY / 77.0% QoQ to • Company has clarified that it will continue to focus INR 1,584 Cr. Net Profit margin for quarter thus on cement business, despite its promoter, Grasim expanded to 12.9% vs 6.8% in Q3FY20 (8.6% in Q2FY21). Industries entering into paint business. • Expects to commission the clinkering unit of 1.5 • EBITDA margin expanded 1,377 bps YoY to 29.6% in MTPA along with 9 MW WHRS in Jayanthipuram and Q3FY21 (from 15.9% in Q3FY20). EBITDA margin 2.25 MTPA clinkering unit in Kurnool before March improvement YoY was on account of lower RM cost, 2021. The one-MTPA cement grinding facility, 12 MW Ramco Cement lower overhead expenses, lower energy cost & lower of WHRS and railway siding in Kurnool are expected transportation cost. to be commissioned in FY22. • Net Profit margin expanded 762bps YoY to 15.0% in • Capex of INR 537 crore is to be incurred for ongoing Q3FY21 (vs 7.4% in Q3FY20). capex (Odisha GU, Jayanthipuram clinker unit, WHRS, Kurnool expansion). • EBITDA rose 28.0% YoY (+12.6% QoQ) to INR 1,126 Cr. EBITDA margin expanded by 383 bps YoY to 31.8% in • Cement capacity will reach 50 MT by Sep 2022E on Q3FY21 from 28.0% in corresponding quarter last year commissioning of 6 MT capacity at Odisha and Shree Cement on account of lower employee cost at 5.5% of revenue Maharashtra. It’s current capacity stands at 44.4 MT in Q3FY21 (vs 6.9% in Q3FY20). including UAE. • Net Profit for the quarter grew 103.7% YoY (up 19.7% QoQ) to INR 631 Cr. • EBITDA margin improved 44 bps YoY (-530 bps QoQ) • Capacity addition of 6.2 MTPA with total capex of to 14.1%. EBITDA margin improvement was led by INR 30 bn augurs well and it will be funded through ACC* gross margin expansion. internal accruals. New capacity would likely be • Net Profit margin improved 473 bps YoY / 113 bps QoQ operational by end of Q2CY22E. to 11.6%.

Note: * stands for closing as per Calendar Year

Revenue growth across the companies

Particulars (INR Cr) Ultratech Cement Ramco Cement Shree Cement ACC Cement

Sales 12,254 1,339 3,541 4,145 Total Expenditure 9,160 942 2,415 3,573 EBITDA 3,094 397 1,126 572 EBITDA Margin (%) 25.3% 29.6% 31.8% 14.1% Depreciation 674 90 322 157 EBIT 2,420 307 804 414 Interest Expense 356 16 60 17 Other income 268 6 108 64 Exceptional items 0 0 0 176 PBT 2,332 298 852 285 Tax 747 96 221 -183 Share of Associates/Minorities 0.2 0 0.7 3.9 PAT 1,584 201 631 472 PAT Margin 12.9% 15.0% 17.8% 11.6% Adj. PAT 1,584 201 631 472 Adj. PAT Margin 12.9% 15.0% 17.8% 11.6% EPS 54.9 8.5 174.9 25.1 Adj. EPS 54.9 8.5 174.9 25.1

Source: Company, KRChoksey

Q3FY21 witnessed improvement in operational efficiency

Particulars (INR Cr) Ultratech Cement Ramco Cement Shree Cement ACC Cement

Change (%) QoQ YoY QoQ YoY QoQ YoY QoQ YoY

Sales 18.00% 17.40% 6.5% 4.8% 9.00% 12.60% 17.2% 2.1% Total Expenditure 19.10% 8.30% 15.6% -12.4% 7.30% 6.60% 24.7% 1.5% EBITDA 14.70% 56.40% -10.2% 95.7% 12.60% 28.00% -14.8% 5.7% Change in EBITDA Margin (bps) -72 bps 630 bps -552 bps 1377 bps 103 bps 383 bps -530 bps 44 bps Depreciation -0.50% -0.60% 4.9% 12.5% 4.00% -29.90% -2.2% -2.1%

EBIT 19.80% 86.10% -13.8% 149.5% 16.50% 91.60% -18.8% 9.0%

Interest Expense -0.40% -24.50% -39.7% -25.6% -6.90% -21.10% 8.6% -40.6%

Other income 98.50% 58.50% -23.7% -24.9% 4.40% 64.50% 40.7% 11.3%

Exceptional items NM NM NM NM NM NM NM NM

PBT 59.50% 133.80% -12.0% 170.3% 16.80% 108.00% -47.2% -30.2%

Tax 32.00% 161.20% -6.0% 528.3% 9.40% 125.20% -203.7% -231.0%

Share of Associates/Minorities -0.671 -1.358 NM NM -0.211 -0.677 NM NM

PAT 77.00% 122.60% -14.6% 112.4% 19.70% 103.70% 29.8% 72.9%

Change in PAT Margin (bps) 431 bps 611 bps -372 bps 762 bps 160 bps 797 bps 113 bps 473 bps

Source: Company, KRChoksey

ACC remains our top pick in Cement Industry

Recommendation Market Cap. CMP Target Price (INR) Upside PE (x) Stocks Revised Old INR Cr. INR New Old % 5 Yr. Avg. FY22 E

Ultratech Cement ACCUMULATE BUY 1,91,052 6,640 7,150 5,964 7.7% 40.7 34.8

The Ramco Cement HOLD HOLD 23,320 999 1,021 868 2.2% 28.6 25.9

Shree Cement ACCUMULATE ACCUMULATE 97,764 27,431 29,584 26,272 7.8% 55.7 46.2

ACC BUY BUY 32,761 1,766 2,100 1,957 18.9% 31.5 19.6

Source: Bloomberg, KRChoksey Research, CMP as of 16th March 2021

ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576 61 Parvati Rai, [email protected], +91-22-6696 5413 is also available on Bloomberg KRCS www.krchoksey.com Thomson Reuters, Factset and Capital IQ IT Sector

62 Earnings Review | IT | Summary Key Takeaways(1/2)

Robust revenue and margin performance across-the-board led by client digital investments, outlook strong • Revenue growth robust led by client digital investments across-the-board, best 3Q performance in several years • Revenue for the IT firms under our coverage rose 3-7% QoQ in USD terms (3-10% QoQ rise in CC terms), with most companies’ revenue ahead of our estimates led by healthy growth in client IT spend across verticals and strong deal wins, mainly towards digital transformation

initiatives, particularly movement of workloads to cloud. • YoY USD revenue rose 2-13% for most firms except Wipro (1.1% decline), Tech Mahindra (-3.3%), Mindtree (flattish) and Sonata Software (- 12.4%), with growth returning for most IT firms under our coverage.

• Digital transformation investments across verticals, large deal wins and lesser-than-usual furloughs aided robust revenue growth. • Vertical-wise, BFSI, Retail, Life Sciences, Manufacturing, Media, Communications, Transportation and Hi-tech all clocked healthy growth by and large, with company-specific exceptions, thus ensuring broad-based revenue recovery; pockets of Retail and Manufacturing remain

stressed, particularly discretionary retail. • Most IT firms raised guidance on both revenue and margins, with large deal wins, hiring plans and wage hikes suggesting good visibility for sustained growth going forward. • Margins see robust performance on growth leverage, rising utilisation and offshore • EBIT margin performance for IT firms in our coverage universe was impressive, with all without exception clocking better-than-expected performance (7-427bps QoQ margin improvement), despite many firms awarding wage hikes.

• Key margin drivers included growth leverage, continuing low cost levels of items such as travel, control in sub-contractor costs, higher utilisation and offshore revenue share; thus, these factors offset the impact of wage hikes awarded by IT firms in 3QFY21. • Cash flow was also robust in 3QFY21, with operating cash flows led by higher profitability and collection discipline. Earnings Review | IT | Summary Key Takeaways (2/2)

TCS, Infosys stand out among top-tier IT, Tata Elxsi, Persistent and Happiest Minds among the mid-sized firms

• Large deal wins, plus a smattering of smaller deals with rapid execution drive major top-tier IT performances • Among the top-tier IT stocks, TCS and Infosys reported stand-out performances, with the IT majors clocking 4.1-5.3% QoQ CC revenue growth rates vs 3.4% for Wipro, 3.5% for HCLT and 2.8% for Tech Mahindra. Growth was fairly broad-based, with key verticals including in particular for HCLT, for whom all verticals saw healthy growth including BFSI and ENU for Infosys, and Retail & CPG, Manufacturing, Life Sciences, and Communications for both TCS and Infosys. • Margin-wise, apart from Infosys, which reported almost flattish EBIT margins, the other top-5 IT firms recorded 40-250bps QoQ EBIT margin expansion, aided by growth leverage, lower sub-contractor and travel cost, higher utilisation and offshore revenue. • Large deal execution, with a smattering of smaller deals with lower execution time frames aided revenue growth for the top-tier IT firms, and clients investing in digital transformation initiatives also underscores how core IT has become to enterprises. TCS’ large deal TCV rose 13% YoY, while that of Infosys rose by an extraordinary 293% YoY, reflecting healthy underlying traction. • Tata Elxsi, Persistent and Happiest Minds stand out among mid-sized firms, Mindtree, Sonata also perform well • Robust growth in Broadcast & Media, and Medical Devices verticals, with continuing recovery in Transportation drove robust performance by Tata Elxsi, with CC revenue up 10% QoQ (8.5% CC EPD growth, 10.9% INR total growth) along with a substantial 295bps QoQ EBIT margin expansion. This represents continuing solid all-round growth recovery. • Persistent Systems and Happiest Minds also reported robust performances, with USD revenue up 7.4% QoQ and 6.0% QoQ, respectively led by large deal execution for the former and client digital investments for the latter; EBIT margin also rose by 60bps for Persistent and by 246bps QoQ for Happiest Minds. • Mindtree and Sonata also reported decent performances, with revenue up 4.6% and 4.5% QoQ, respectively, along with 227bps and 427bps QoQ margin expansion, respectively. 64

Earnings Review | IT | Coverage: Results Summary (1/3)

Companies Revenue Margin Industry Outlook / Strategy • TCS’ 3QFY21 revenue grew at 4.1% CC • EBIT margin rose by 42bps QoQ to 26.6% • Medium-term revenue visibility appears QoQ aided by Manufacturing (+7.1% (our expectations 25.5%) despite wage hikes strong, and recent deals such as QoQ in CC terms), Life Sciences and awarded, aided by revenue growth and cost Postbank are also likely to add to Healthcare (+5.2%), Communications control. capabilities, further driving revenue. TCS & Media (+5.5%) and Retail & CPG (+3.1%) verticals. • Geo-wise, North America revenue rose 3.3% QoQ in CC terms. • Vertical-wise, Financial Services • EBIT margin rose slightly by as much as • The IT major revised upward both (+9.6% QoQ in USD terms), Retail 268bps QoQ on revenue growth, revenue and margin guidance, and (+4.7% QoQ), COMM (+4.6%), ENU operational efficiency and higher now expects FY21 revenue growth in (+8.1%) and Life Sciences (+10.2%) utilization. EBIT margin came in at its CC terms to range between 4.5-5% and Infosys saw robust growth. highest level since 4QFY16. EBIT margin at 24-25% (2-3% and 23-24% • Geo-wise, North America (+8% QoQ in earlier). USD terms), Europe (+5.1%) and Rest of the World (+4.6%) all clocked healthy growth. • Wipro’s’ 3QFY21 IT revenue was led • IT Services EBIT margin rose by 246bps • Wipro has guided for 4Q revenue by Consumer Business Unit (+5.2%), QoQ to 21.7%, a 22-quarter high, aided by growth of 1.5-3.5% QoQ in CC terms, ENU (+4.1%), Health BU (+5.0%), revenue growth, cost control and higher which is largely in-line with Wipro Manufacturing (+4.0%) and offshore, and despite lower utilisation. expectations. Technology (+4.5%).

• CC revenue was led by Technology • EBIT margin saw expansion of 128bps QoQ • The IT major has guided for 2-3% QoQ and Services (+6.8% QoQ growth in to 22.9% (203bps above our estimate) aided in CC terms for 4QFY21, while for the HCL CC terms), Telecommunications, by revenue growth and cost control, which full-year FY21, EBIT margin guidance Technologies Media & Entertainment (+12.1%), was the key driver for net profit growth of has been tweaked upward to a range Manufacturing (+5.6%) and Retail & 26.7% QoQ to INR 39.82 bn. of 21-21.5% vs 20-21% earlier. CPG (+3.7%) verticals.

65 Earnings Review | IT | Coverage: Results Summary (2/3)

Companies Revenue Margin Industry Outlook / Strategy • Revenue was aided by growth • EBIT margin surged 173bps QoQ to 15.9%, • Management expects acceleration in across verticals including the highest level since 3QFY19 (151bps deal wins going forward given Tech Communications (+4.5% QoQ in above our estimate), aided by revenue continuing investments by clients in Mahindra USD terms), Manufacturing (+4.7% growth, lower SG&A cost and higher (87% both digital transformation and cost QoQ) and Retail, Transport & cum-trainees vs 85% in 2QFY21. take out efforts. Logistics (+8.9% QoQ) • Revenue was led by Travel & • EBIT margin surged by as much as 222bps • Management expects growth Hospitality (+13.0% QoQ), QoQ to 19.6% (260bps above our momentum to continue in coming Manufacturing, CPG & Retail (+5.8% estimate), its highest-ever level, aided by quarters. Mindtree QoQ) and CMT (+5.1% QoQ), revenue growth leverage, cost control, • Offshore leverage is likely to continue verticals. lower travel cost, higher utilization (83.1% in the near-term, and utilization will cum-trainees vs 78.8% in 2QFY21). remain in the 81-82% range.

• Revenue rose 3.9% QoQ, above • Profitability-wise, EBIT margin saw a • Persistent implemented wage hikes for expectations, aided by 5.3% QoQ healthy 171bps QoQ expansion, aided by all employees from November 2020. linear services growth (offshore revenue growth, lower royalty cost, • Persistent is targeting US$ 1 billion in Persistent volume growth at 7.8% QoQ), with operational efficiency and higher revenue over the next 4 years including Systems BFSI (+4.2% QoQ) and Technology utilisation. inorganic growth. (+4.5%) clocking healthy growth among the verticals, aided by deal ramp ups. • Vertical-wise, Transportation • EBIT margin powered ahead by 295bps • Focus is on new media, which requires revenue saw another quarter of QoQ to 27.8% on revenue growth leverage differentiated skill sets, apart from good growth, with revenue up 7.9% and sustained lower costs due to WFH expansion in verticals like Off-highway, QoQ, aided by new deals. Among mandate. etc. Tata Elxsi other verticals, Broadcast & • Onsite revenue is likely to be at 30% of Communications and Healthcare revenue in the medium-term. and Medical Devices both clocked • PBT margin is likely to be in between healthy growth of 8% and 24% QoQ, the earlier range of 22-24% and the respectively. current margin.

66 Earnings Review | IT | Coverage: Results Summary (3/3)

Companies Revenue Margin Industry Outlook / Strategy • Sonata Software’s IITS revenue • EBIT margin declined 237bps QoQ to • Non-essential Retail – consumer was up 5.1% QoQ in USD terms, led 7.2%, owing to strong 3Q DPS buying behavior is uncertain, could by Travel (+5.1%), Distribution seasonality and higher IITS margins take 2 more quarters before any & Manufacturing (+7.8%), Retail (EBITDA margin up 427bps QoQ) recovery is likely. Sonata Software Essential (+13.7%) and Commodity owing to higher offshore (65% vs 63% • In the near-term, IITS margins are & Service Industry (+24.7%) in 2Q), utilization (89% vs 87% in 2Q), likely to trend above pre-COVID verticals. billability (79% vs 77% in 2Q) and cost levels owing to higher offshore control. revenue share. • Revenue up 6% QoQ aided by • EBIT margin surged by 246bps QoQ to • Revenue growth to sustain at 20% growth in Hi-tech (+9.8% QoQ in 23.9%, its highest-ever level, aided by annually in the long term. USD terms), BFSI (+13.2%), Travel, revenue growth, cost control, higher • HMT is looking to hire more people in Happiest Minds Media & Entertainment (+17.4%), utilisation (81.6% vs 78.7%) and the light of a robust deal pipeline, Technologies Industrial (+7.6%) and offshore mix (81% vs 78.1%). with more campus hires likely in the Manufacturing (+7.6%) verticals. near-term.

• For Q3FY21 on consolidated basis • EBITDA declined 3.1% YoY (up 15.6% • Infibeam has witnessed highest ever revenue grew 46.6% YoY (up 53.2% QoQ) to INR 397 mn. payment processing volume in QoQ) to INR 2,278 mn. • EBITDA margin contracted 893 bps Q3FY21 and expect momentum to • Revenue growth was driven by YoY / 566 bps QoQ to 17.4%. continue with gradual opening of festivals and gradual recovery in • EBITDA was affected due to product other sector in Q3FY21 like aviation, Infibeam Avenues aviation, travel & tourism, hotel mix change and new verticals coming hospitality, travel etc. post COVID-19. and entertainment industry. in during the quarter. • The company has structured the pricing in payment business for capturing market opportunity in line with industry.

67 Earnings Review | IT | Coverage: Performance Overview (1/6)

Particulars (INR Cr) Infosys TCS HCL Technologies Tech Mahindra Wipro

Sales 25,927 42,015 19,302 9,647 15,670

Total Expenditure 18,512 29,807 13,678 7,752 11,553

EBITDA 7,415 12,208 5,624 1,896 4,117

EBITDA Margin (%) 28.6% 29.1% 29.1% 19.65% 26.28%

Depreciation 826 1,024 1,187 358.4 791.2

EBIT 6,589 11,184 4,437 1,537 3,326

Interest Expense 49 183 147 42.1 140

Other income 611 691 189 220.9 654.1

Exceptional Items 0 0 0 0 0

PBT 7,151 11,692 4,479 1,716 3,840

Tax 1,936 2,965 502 426.3 852.6

Share of Associates/Minorities 0 0 0 20.2 -19.7

PAT 5,215 8,727 3,977 1,310 2,968

PAT Margin 20.1% 20.8% 20.6% 13.58% 18.94%

EPS (INR) 12.2 23.2 14.6 14.98 5.21

Source: Company, KRChoksey Research

68 Earnings Review | IT | Coverage: Performance Overview (2/6)

Particulars (INR Cr) Persistent Systems Tata Elxsi Mindtree Sonata Software

Sales 1,075 477 2,024 1,396

Total Expenditure 893 333 1,556 1,285

EBITDA 182 144 468 111

EBITDA Margin (%) 16.97% 30.10% 23.12% 7.94%

Depreciation 46.105 11.0529 71.7 9.92

EBIT 136 133 396 101

Interest Expense 1.375 1.3478 12.7 4.62

Other income 30.012 15.085 61.6 3.25

Exceptional items 0 0 0 0

PBT 165 146 445 100

Tax 44.086 41.0935 118.6 45.84

Share of Associates/Minorities 0 0 0 0

PAT 121 105 327 54

PAT Margin 11.24% 22.05% 16.13% 3.85%

EPS (INR) 15.82 16.89 19.82 5.18

Source: Company, KRChoksey Research

69 Earnings Review | IT | Coverage: Performance Overview (3/6)

Particulars (INR Cr) Happiest Minds Technologies Infibeam Avenues

Sales 193 228

Total Expenditure 142 188

EBITDA 51 40

EBITDA Margin (%) 26.57% 17.4%

Depreciation 5.16 17

EBIT 46 23

Interest Expense 1.26 0.9

Other income 8.45 2

Exceptional items 0 -

PBT 53 22

Tax 11.12 9

Share of Associates/Minorities 0 -2.2

PAT 42 12.8

PAT Margin 21.86% 5.6%

EPS (INR) 2.98 0.19

70 Earnings Review | IT | Coverage: Performance Overview 4/6)

Particulars Infosys TCS HCL Technologies Tech Mahindra Wipro

Change (%) QoQ YoY QoQ YoY QoQ YoY QoQ YoY QoQ YoY

Sales 5.5% 12.3% 4.7% 5.4% 3.8% 6.4% 2.9% -0.1% 3.8% 1.3%

Total Expenditure 5.9% 7.1% 4.1% 2.8% 1.5% 1.3% 1.1% -4.2% -0.9% -6.0%

EBITDA 4.7% 27.8% 6.0% 12.3% 9.9% 21.5% 11.3% 21.2% 19.8% 29.5%

Change in EBITDA Margin (bps) -23 bps 348 bps 37 bps 178 bps 161 bps 361 bps 145 bps 346 bps 348 bps 572 bps

Depreciation -3.4% 12.1% 2.6% 14.2% 8.7% 26.0% -3.7% -6.9% 20.2% 49.5%

EBIT 5.8% 30.1% 6.4% 12.1% 10.2% 20.3% 15.5% 30.4% 19.6% 25.5%

Interest Expense 2.1% 16.7% - - 83.8% -7.0% 10.8% -23.5% 10.2% -24.1%

Other income 7.2% -26.1% -24.4% -15.5% -5.0% 20.4% 87.2% -36.8% 17.9% 7.3%

Exceptional items ------

PBT 5.9% 22.3% 3.9% 10.6% 8.1% 21.5% 21.6% 16.5% 19.7% 24.8%

Tax 2.3% 40.0% 17.1% 22.2% -49.7% -32.3% 23.2% 17.5% 17.9% 38.3%

Share of Associates/Minorities 0 0 0.0 0.0 0.0 0.0 -1110.0% -43.4% -203.7% 432.4%

PAT 7.3% 16.8% 0.1% 7.2% 26.4% 35.1% 22.9% 14.3% 20.4% 20.9%

Change in PAT Margin (bps) 34 bps 77 bps -96 bps 34 bps 368 bps 437 bps 218 bps 171 bps 264 bps 307 bps

Source: Company, KRChoksey Research

71 Earnings Review | IT | Coverage: Performance Overview (5/6)

Particulars Persistent Systems Tata Elxsi Mindtree Sonata Software

Change (%) QoQ YoY QoQ YoY QoQ YoY QoQ YoY

Sales 6.7% 16.5% 11.0% 12.7% 5.1% 3.0% 73.7% 12.9%

Total Expenditure 6.0% 11.7% 6.9% 1.3% 1.3% -6.2% 79.5% 14.0%

EBITDA 9.9% 47.7% 21.7% 52.5% 20.0% 52.8% 27.5% 1.1%

Change in EBITDA Margin (bps) 57 bps 358 bps 270 bps 786 bps 282 bps 754 bps -296 bps -92 bps

Depreciation 4.8% 7.6% 0.5% -1.5% 25.8% 2.6% -0.8% 8.7%

EBIT 11.8% 69.0% 23.9% 59.8% 19.0% 67.6% 31.2% 0.5%

Interest Expense NM -6.8% 34.8% -6.6% -2.3% -4.5% 15.5% 7.4%

Other income 87.6% -13.7% 277.1% -26.5% 146.4% 77.0% 62.5% -62.2%

Exceptional Items NM NM NM NM NM NM NM NM

PBT 19.6% 44.8% 33.0% 43.3% 29.0% 72.6% 31.1% -5.0%

Tax 22.5% 69.2% 32.6% 54.3% 30.3% 94.7% 141.3% 58.2%

Share of Associates/Minorities NM NM NM NM NM NM NM NM

PAT 18.6% 37.5% 33.2% 39.5% 28.5% 65.7% -5.6% -29.1%

Change in PAT Margin (bps) 114 bps 172 bps 375 bps 424 bps 293 bps 611 bps -325 bps -228 bps

Source: Company, KRChoksey Research

72 Earnings Review | IT | Coverage: Performance Overview (6/6)

Particulars Happiest Minds Technologies Infibeam Avenues

Change (%) QoQ YoY QoQ YoY

Sales 5.5% 12.4% 53.2% 46.6%

Total Expenditure 2.2% -4.0% 64.5% 64.4%

EBITDA 15.6% 113.1% 15.6% -3.1%

Change in EBITDA Margin (bps) 233 bps 1255 bps -566 bps -893 bps

Depreciation 0.8% 1.4% -31.1% -32.9%

EBIT 17.6% 143.2% 129.8% 43.6%

Interest Expense -21.3% -23.2% -11.3% -17.3%

Other Income 66.7% 107.6% -35.0% -1.0%

Exceptional Items NM NM NM NM

PBT 24.8% 149.2% -35.5% -22.1%

Tax 29.5% NM 22.9% -54.3%

Share of Associates/Minorities NM NM 104.3% 77.1%

PAT 23.7% 97.1% 9.5% -44.2%

Change in PAT Margin (bps) 322 bps 939 bps -224 bps -914 bps

73 Earnings Review | Our Top Sector Picks and Recommendations

Recommendation Market Cap. CMP Target Price (INR) Upside PE (x) Stocks Revised Old INR Cr. INR New Old % 5 Yr. Avg. FY22 E

TCS BUY BUY 1,13,95,992 3,037 3,580 3,170 17.9 23.9 27.8

Infosys BUY BUY 58,16,170 1,336 1,675 1,305 25.4 19.2 24.3

Wipro BUY BUY 24,03,455 411 555 420 35.0 16.4 18.1

HCL Tech. BUY BUY 25,72,005 948 1,130 1,015 19.2 15.9 18.6

Tech Mahindra ACCUMULATE ACCUMULATE 8,85,444 996 1,120 975 12.4 15.4 15.9

Mindtree HOLD BUY 3,30,102 1,969 2,050 1,520 4.1 21.8 23.1

Persistent SELL ACCUMULATE 1,41,157 1,847 1,740 1,415 -5.8 17.8 25.6

Tata Elxsi SELL HOLD 1,66,029 2,666 2,500 1,785 -6.2 29.1 39.9

Sonata HOLD ACCUMULATE 50,288 484 500 393 3.3 13.5 16.1

Happiest Minds SELL HOLD 74,370 527 465 415 -11.7 52.6 38.3 Technologies

Infibeam Avenues BUY BUY 6,971 108 171 110 58.3% 147.0 34.0

Source: Company, KRChoksey Research, CMP as of 18th March 2021

74 Pharmaceutical Sector

75 Earnings Review | Pharma | Summary Key Takeaways

Another good quarter; led by exports & cost savings

Indian Pharma Market (IPM) growth momentum continues in December quarter; Volume decline narrows: • For the quarter ended Dec-20, Indian Pharma Market (IPM) reported a revenue growth of 6.0% YoY (vs -1.0% YoY in Sep quarter). • Volume fell 1.9% YoY (vs -6.3% YoY in Sep quarter), Price led growth was 4.9% YoY (vs +4.6% in previous quarter) while New Product Launch led growth was at 3.4% YoY (+2.8% in previous quarter). • Anti-infectives and gastro-intestinal lead the growth for Q3FY21. Therapy performance in the domestic market: • Cardiac, Anti-Diabetics therapies grew at 12.0%/6.0% for YTD FY21 on a MAT basis in the domestic market, while Respiratory declined 6.0% for YTD FY21. • On the other hand, Anti-Infectives, Pain management and Gynae therapy sales declined at 6.0%/6.0%/-6.0% for YTD FY21 which had an adverse impact on MAT YTD FY21 sales growth. Healthy revenue growth in Pharma coverage; continued cost savings supported margin improvement: • Our coverage stocks reported an aggregate growth of 8.8% YoY (+0.4% QoQ) growth in sales during Q3FY21. Granules India (+20.0% YoY/- 1.6% QoQ), Cipla (18.2% YoY/+2.6% QOQ) and Dr. Reddy’s (+12.4% YoY/+0.6% QoQ) led the growth in revenue in Q3FY21. • EBITDA of pharma coverage grew 27.4% YoY (-1.2% QoQ) with margin improvement of ~343bps YoY (-37bps QoQ). Lupin saw highest improvement in EBITDA margin in Q3FY21 (800 bps YoY / 423 bps QoQ), followed by Cipla (647 bps YoY / 46 bps QoQ) & Sun Pharma (484 bps YoY / -59 bps QoQ) • Overall Adj. Net Profit for the quarter grew 59.5% YoY (flat QoQ) with Adj. PAT Margin improvement of 420bps YoY (flat QoQ). Sun Pharma (+976bps YoY/+756bps QoQ), Cipla (+644bps YoY/+126bps QoQ) & Cadila Healthcare (+348bps YoY/-124bps QoQ) saw highest improvement in Adj. PAT Margin. Earnings Review | Pharma | Coverage: Results Summary …(1/6)

Companies Revenue and Segment-wise Performance

• Sun Pharma reported consolidated total Revenue growth of 8.4% YoY (up 3.3% QoQ) to INR 88,368 mn, driven primarily by Rest of the World (ROW) and US markets. Sun Pharma • ROW grew 15.6% YoY (-3.5% QoQ, 14.5% of revenue) while EM grew 8.4% YoY (-3.3% QoQ, 17.2% of revenue). • Domestic business grew 9.4% YoY (+8.8% QoQ, 31.3% of revenue). US business grew 10.8% YoY (+10.8% QoQ, 31.4% of revenue) in Q3FY21. • API business declined 10.5% YoY (-11.7% QoQ, 5.1% of revenue) while Other revenue grew 7% YoY (-22% QoQ, 0.4% of revenue).

• Lupin reported Revenue growth of 6.6% YoY / 4.8% QoQ to INR 40,174 mn driven by India, ROW and EMEA. • India sales grew 5.4% YoY (2.6% QoQ, 38.3% of revenue), while ROW grew 28.5% YoY (77.5% QoQ, 3% of revenue) and EMEA grew 12.3% YoY (0.4% QoQ, 9% of revenue). Lupin • North America grew 4.8% YoY (3.1% QoQ, 40% of revenue), while Growth market declined 5.8% YoY (up 13.6% QoQ, 9% of revenue) • API revenue rose 8.4% YoY (down 8.1% QoQ, 9% % of revenue).

• Cipla reported revenue growth of 18.2% YoY / 2.6% QoQ to INR 51,687 mn in Q3FY21, on account of strong growth across geographies. • India which is the largest revenue contributor (~43% of sales) grew 21.6% YoY/ 6.7% QoQ led by strong growth in prescription (+25.0% YoY) backed by continued traction in the Covid-19 portfolio, chronic therapies, modest recovery in the hospital portfolio, followed by healthy growth in trade generic and CHL business. • Europe business (~5% of sales) grew 32.6% YoY/ 2.0% QoQ led by strong growth in key DTM market. API business (~4% of sales) Cipla grew 21.8% YoY/ 6.3% QoQ. • SAGA (South Africa, Sub-Saharan Africa and Cipla Global Access) region (~18% of sales) grew 9.9% YoY / down 1.2% QoQ of which SA (South Africa) business contributed 63% of SAGA sales. North America (~20% of sales) grew 9.6% YoY / down 1.1% QoQ, due to continued traction in new launches. • EM (~10% of sales) grew 51.1% YoY / 3.0% QoQ, it grew across all region. Remdesivir supplies commenced in multiple emerging markets. Earnings Review | Pharma | Coverage: Results Summary …(2/6)

Companies Revenue and Segment-wise Performance

• Dr. Reddy’s laboratories reported Revenue growth of 12.4% YoY (up 0.6% QoQ) to INR 49,419 mn. • North America grew 9.0% YoY (down 5.0% QoQ, 35% of revenue), Europe grew 34.0% YoY (up 10% QoQ, 8% of revenue), India grew 26.0% YoY (up 5.0% QoQ, 19% of revenue), Emerging markets grew 5.0% YoY (up 11.0% QoQ, 20% of revenue), PSAI grew Dr. Reddy’s 1% YoY (down 18.0% QoQ, 14% of revenue), • While PP & Others grew by 53.0% YoY (up 147% QoQ, 3% of revenue) primarily driven by milestone income received for the compound AUR102.

• Cadila Healthcare reported Revenue growth of 4.3Y YoY (-0.6% QoQ) to INR 37,956 mn in Q3FY21. • India geography which comprises Human health formulations business, Consumer wellness business and Animal health business posted strong growth during the quarter as it grew by 20% on a YoY basis and registered revenues of INR 1,643 cr. Cadila • Human health formulations business in India grew by 21%, Consumer wellness business grew by 16% and Animal health Healthcare business grew by 17% on a YoY basis during the quarter. • Cadila filed 10 additional ANDAs with the USFDA taking the cumulative number of filings to 410 and received 9 new product approvals (including 4 tentative approvals) from the USFDA.

• Glenmark Pharmaceuticals reported revenue growth of 1.9% YoY (down 5.6% QoQ) to INR 27.6bn, mainly led by growth in Domestic, EU market and API business. • India business (~32% of revenue) grew 11.8% YoY (down 16.0% QoQ). API business (~11% of revenue) grew 22.1% YoY (down 0.4% Glenmark QoQ). • EU business (~11% of revenue) grew 1.4% YoY (down 1.5% QoQ). ROW (~12% of revenue) declined 1.6% YoY / 11.7% QoQ. • US declined 2.4% YoY / up 3.8% QoQ. LA declined 17.8% YoY / up 30.7% QoQ. Other revenue declined 66.4% YoY / 15.9% QoQ.

Earnings Review | Pharma | Coverage: Results Summary …(3/6)

Companies Revenue and Segment-wise Performance • Torrent Pharma reported Q3FY21 Revenue growth of 1.5% YoY (down 1.1% QoQ) to INR 19,950 mn. • India business grew 6.8% YoY (-3.1% QoQ, 47% of revenue), versus the IPM growth of 6% for the quarter as per AIOCD. Sub- chronic and acute segments witnessed strong recovery during the quarter while chronic momentum continued. Field Force Torrent Pharma productivity (PCPM) for the quarter was INR 8.1 lakhs with an MR strength of 3,800. • Germany business grew 21.0% YoY (+1.5% QoQ, 13% of revenue). The US business declined –23.4% YoY (-10.7% QoQ, 15% of revenue), Brazil business declined -8.5% YoY (34.1% QoQ, 9% of revenue). Other countries posted a decline of 2.1% YoY / 4.5% QoQ while other revenue grew 31.8% YoY / 4.3% QoQ.

• Aurobindo reported Revenue growth of 8.0% YoY (-1.8% QoQ) to INR 63.6 bn, led by the US & Antiretroviral business. • Overall Formulation business grew 11.3% YoY (+0.5% QoQ, 89% of sales), while API business declined 13.6% YoY (-17.7% QoQ, Aurobindo ~11% of sales). Pharma • Within Formulations, US sales grew 6.8% YoY (-0.6% QoQ, 50% of revenue), Europe sales grew 13.2% YoY (+10.3% QoQ, 26.3% of revenue), Anti-Retrovirals grew 41.5% YoY (-11.8% QoQ, ~7% of revenue). • Within APIs, Betalactum declined 24.3% YoY (-11.0% QoQ), while Non-Betalactum grew 6.1% YoY (-25.1% QoQ).

• Alembic Pharma reported revenue growth of 8.7% YoY (down 9.8% QoQ) to INR 13.1 bn. • Formulation business reported revenue growth of 6.7% YoY (down 9.7% QoQ) to INR 11 bn in Q3FY21. Alembic • While US business reported decline of 0.6% YoY, India and RoW reported 13.6% / 14.8% YoY revenue growth. Pharma • API business reported robust revenue growth of 20.9% YoY (down 18.6% QoQ) to INR 2.1bn.

• Granules India reported Revenue growth of 20.0% YoY (down 1.6% QoQ) to INR 84,451 Lakhs in Q3FY21, mainly on account of four new launches and increase in market share of existing products across the three verticals. • Contribution from Finished Dosage (FD) decreased to 49.9% in Q3FY21 (from 53.8% in Q3FY20), PFI contribution increased to 20.2% (from 16.5% in Q3FY20) & rest 29.8% was contributed by APIs (against 29.7% in Q3FY20). Granules India • API sales grew 20.0% YoY (+19.3% QoQ) with acquisition of new customers, PFI sales grew 48.0% YoY (+51.8% QoQ) with increasing contribution on account of increasing penetration of PFIs as a category, while FD revenue rose 11.0% YoY (+11.0% QoQ). Earnings Review | Pharma | Coverage: Results Summary …(4/6)

Companies Margin Performance

• EBITDA rose 32.7% YoY to INR 23,345 mn (+1.1% QoQ). • EBITDA margin expanded 484 bps YoY to 26.4% in Q3FY21 (from 21.6% in Q3FY20) due to higher gross margin and lower other expenses as % of revenue. On the sequential basis, EBITDA contracted by 59 bps. Sun Pharma • Company reported PAT of of INR 18,512 mn for the quarter primarily due to better margin, higher other income at INR 3,150 mn (vs INR 1,199 mn in Q3YFY20), lower finance cost at INR 261 mn. Company had a forex gain of INR 716 mn (vs loss of INR 818mn in Q3FY21).

• EBITDA grew 81.5% YoY / 34.0% QoQ to INR 7,787mn, due to improved operational efficiency. • EBITDA margin expanded 800bps YoY/423bps QoQ to 19.4% in Q3FY21. EBITDA margin expansion was on account of higher gross margin, lower employee cost and other expenses as % of revenue. Lupin • Employee cost as % of revenue was 17.6% in Q3FY21 compared to 19.7% last year, while other expenses as % of revenue was 28.8% compared to 32.9% last year. • Company’s reported Net Profit of INR 4,383 mn in Q3FY21 as against a loss of INR 8,350 in Q3FY20. Net Profit margin came in at 11.0% (vs 5.6% in Q2FY21).

• EBITDA for the quarter grew 62.3% YoY / 4.6% QoQ to INR 12,309 mn. EBITDA margin expanded 647 bps YoY (up 46bps QoQ) to 23.8%. • YoY improvement in EBIDTA margin was on account of lower employee cost at 16.3% of revenue (vs 17.1% in Q3FY20) and Cipla lower other expenses at 21.3% of revenue (vs 28.0% in Q3FY20) on account of cost saving measures • Effective tax rate at 26.3% in Q3FY21 vs 30.2% in Q3FY20, contributed to net profit margin expansion. • Net Profit grew 113.1% YoY / 12.4% QoQ to INR 7,481 mn. Accordingly, net profit margin expanded 644 bps YoY (up 127 bps QoQ) to 14.5%. Earnings Review | Pharma | Coverage: Results Summary …(5/6)

Companies Margin Performance

• GPM contracted by 95 bps due to price erosion and lower export benefits, partially offset by the milestone income from the compound AUR102. • Increase in EBITDA by 10.2% YoY (down 7.9% QoQ) to INR 11,365 mn while EBITDA margin contracted by 46 bps YoY to 23.0% in Q3FY21 (from 23.5% last year), primarily on account of lower Gross Profit Margin, despite lower employee cost at 18.5% of revenue (vs 19.1% in Q3FY20). Selling & Other expenses stood at 25.3% of revenue in Q3FY21. Dr. Reddy’s • D&A cost rose 8.5% YoY and other income & finance cost increased by 4.8%/23.7%, respectively. Impairment charge of INR 6.0 bn (vs. 13.2 bn in Q3FY20) due to price erosion. Adjusted Net Profit Margin contracted 513bps YoY (-466 bps QoQ). • Company reported Net Profit of INR 279 mn during the quarter, a decline of 105.2% YoY (down 96.4% QoQ). The decline in Net Profit was on account of positive effective tax rate at 95.4% (vs -41.4% in Q3FY20).

• EBITDA rose 15.6% YoY (down 6.5% QoQ) to INR 8,069 mn. EBITDA margin expanded 208bps YoY (contracted 134 bps). • EBITDA margin improvement YoY was on account of lower other expenses at 28.1% of revenue in Q3FY21 vs 29.6% in Q3FY20) Cadila & lower employee cost at 16.6% of revenue (vs 17.0% in Q3FY20). Healthcare • Finance cost decline 66.7% YoY / 41.4% QoQ to INR 268mn, while other income grew 36.8% YoY / flat QoQ to INR 275 mn thereby Adj. PAT grew 39.2% YoY (down 8.8% QoQ) to INR 5,272mn. • Accordingly, Adj. PAT margin expanded 348 bps YoY (down 124 bps QoQ) to 13.9%.

• EBITDA grew 20.5% YoY (down 4.1% QoQ) to INR 5,301 mn. EBITDA margin expanded 293 bps YoY / 30 bps QoQ, due to higher gross margin and lower employee cost as % of sales. Glenmark • Depreciation grew 8.7% YoY / 10.7% QoQ to INR 1,152mn. Other income declined 54.2% YoY / 147.3% QoQ to INR 151 mn, while Pharma interest expenses declined 0.7% YoY /(up 18.3% QoQ) to INR 954mn in Q3FY21. • EBITDA growth and lower tax rate resulted in Adj. Profit growth of 23.0% YoY/1.7% QoQ to INR 2,348 mn in Q3FY21. Earnings Review | Pharma | Coverage: Results Summary …(6/6)

Companies Margin Performance

• Gross margin for the quarter at 71.8% was lower by 60bps YoY and by 70bps QoQ. Inventory adjustment affected the Gross Margin during the quarter. • EBITDA grew 12.4% YoY (-4.4% QoQ) to INR 6,070 mn. EBITDA margin expanded 296 bps YoY to 30.4% in Q3FY21 (from 27.5% Torrent Pharma last year), on account of lower other expenses at 23.2% of revenue (vs 27.0% of revenue in Q3FY20). On sequential basis, EBITDA margin contracted by 105bps. • Net Profit grew 18.3% YoY (down 4.2% QoQ) with 212bps YoY (-48bps QoQ) improvement in Net Profit Margin due to lower finance cost at INR 910 mn in Q3FY21 vs (INR 1,110 mn in Q3FY20).

• EBITDA for the quarter rose 13.3% YoY (-4.5% QoQ) to INR 13.7 bn while EBITDA margin expanded 101 bps YoY (-60 bps QoQ) to 21.5% in Q3FY21. Aurobindo • Reported Net Profit rose 317.7% YoY (+265.5% QoQ) to INR 29.5 bn mainly on account of exceptional item of gain of sale of Pharma business asset of wholly owned subsidiary. While Adj. Net Profit declined 81.3% YoY/ 83.6% QoQ.

• Alembic Pharma recorded EBITDA margin of 27.8% in Q3FY21 (+89 bps YoY) mainly on account of higher gross margin, while other expenses and employee cost reported increase in cost as % of revenue. Alembic • Tax expenses for quarter grew 21.7% YoY to INR 591mn. Pharma • Net Profit Margin expansion of 289bps YoY was on account of EBITDA margin expansion, higher other income at INR 25 mn (vs INR 4 mn in Q3FY20) and 68.6% YoY decline in finance cost.

• Gross margin improved 418bps to 49.3% in Q3FY21 from 45.2% in Q3FY20. • EBITDA grew 29.7% YoY (down 17.5% QoQ) to INR 21,156 Lakhs in Q3FY21. EBITDA margin expanded to 25.1% in Q3FY21 (+188bps YoY) and declined 483bps on QoQ basis. Expansion in EBITDA margin was on account of changing product mix and Granules India improved operational efficiencies arising out of higher capacity utilization. • Net Profit grew 129.3% on YoY mainly on account of exceptional item recorded in Q3FY20, while it was down 10.3% on QoQ basis to INR 14,681 Lakhs. Earnings Review | Pharma | Coverage: Performance Overview …(1/6)

Coverage universe reported mixed set of numbers

Particulars (INR Mn) Sun Pharma Lupin Cipla Dr. Reddy’s Total Revenue 88,368 40,174 51,687 49,419 Total Expenditure 65,023 32,386 39,378 38,054 Material Cost 23,334 13,750 19,935 16,377 Employee Cost 17,205 7,068 8,444 9,157 Other expenses 24,484 11,569 11,000 12,520 EBITDA 23,345 7,787 12,309 11,365 EBITDA Margin (%) 26.4% 19.4% 23.8% 23.0% Depreciation 5,319 2,443 2,484 3,112 EBIT 18,026 5,344 9,824 2,281 Interest Expense 261 309 479 188 Other Income 3,150 212 869 705 Exceptional Items 0 0 0 5,972 Net (gain) /loss on FX -716 0 0 0 PBT 21,631 5,248 10,215 2,798 Tax 2,449 835 2,690 2,670 Share of Associates -47 2 -9 151 Minority Interest 609 31 35 0 PAT 18,525 4,383 7,481 279 PAT Margin 21.0% 10.9% 14.5% 0.6% Adj. PAT 18,525 4,414 7,481 6,251 Adj. PAT Margin 21.0% 11.0% 14.5% 12.6% EPS 7.7 9.7 9.3 37.6

Source: Company, KRChoksey Research Earnings Review | Pharma | Coverage: Performance Overview …(2/6)

Sun Pharma, Lupin& Cipla lead in margin improvement on YoY basis Particulars Sun Pharma Lupin Cipla Dr. Reddy’s Change % QoQ YoY QoQ YoY QoQ YoY QoQ YoY Sales 3.3% 8.4% 4.8% 6.6% 2.6% 18.2% 0.6% 12.4% Total Expenditure 4.1% 1.7% -0.5% -3.0% 2.0% 9.0% 3.5% 13.1% Material Cost 8.7% 6.1% -0.5% 1.2% 2.4% 21.2% 3.6% 15.7% Employee Cost 0.9% 11.1% 3.1% -4.6% 2.9% 13.3% -3.5% 9.3% Other expenses 2.4% -7.5% -2.5% -6.7% 0.5% -10.0% 9.1% 12.5% EBITDA 1.1% 32.7% 34.0% 81.5% 4.6% 62.3% -7.9% 10.2% EBITDA Margin (bps) -59 bps 484 bps 423 bps 800 bps 46 bps 647 bps -213 bps -46 bps Depreciation 6.7% -2.8% 14.8% -3.5% -6.3% -10.6% -1.7% 8.5% EBIT -0.5% 48.7% 45.0% 203.9% 7.8% 104.5% -72.8% -139.6% Interest Expense -21.6% -58.5% -8.0% -65.1% 21.8% 3.8% -25.4% 23.7% Other Income 23.1% 162.7% -15.2% -77.4% 62.6% 20.5% 37.7% 4.8% PBT 12.8% 60.1% 45.7% 188.6% 10.4% 101.7% -67.7% -153.4% Exceptional Items 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 664.7% -54.8% Tax NM -25.2% -43.1% -89.1% 2.0% 76.0% 164.1% NM Share of associates NM NM NM NM NM NM 106.8% -14.2% Minority Interest -53.1% -42.4% 24.5% -157.8% NM NM NM NM PAT 2.2% 102.8% 107.7% NM 12.4% 113.1% -96.4% -105.2% PAT Margin NM NM 541 bps 3306 bps 126 bps 644 bps -1515 bps 1281 bps Adj .PAT 61.6% 102.8% 106.7% NM 12.4% 113.1% -26.5% -20.0% Adj PAT Margin 756 bps 976 bps 542 bps NM 126 bps 644 bps -466 bps -513 bps Source: Company, KRChoksey Research Earnings Review | Pharma | Coverage: Performance Overview …(3/6)

Aurobindo Pharma post highest revenue growth among the pack

Particulars (INR Mn) Cadila Healthcare Glenmark Pharma Torrent Pharma Aurobindo Pharma

Sales 37,956 27,868 19,950 63,649 Total Expenditure 29,887 22,567 13,880 49,963 Material Cost 12,935 9,114 5,620 25,723 Employee Cost 6,286 5,966 3,630 8,807 Other expenses 10,666 7,487 4,630 15,433 EBITDA 8,069 5,301 6,070 13,686 EBITDA Margin (%) 21.3% 19.0% 30.4% 21.5% Depreciation 1,804 1,152 1,670 2,765 EBIT 6,265 4,149 4,400 10,921 Interest Expense 268 954 910 195 Other Income 275 151 80 1,334 Exceptional Items 0 0 0 -28,139 PBT 6,272 3,480 3,570 40,054 Tax 1,147 998 600 10,591 Share of Associates 155 0 0 -145 Minority Interest 8 0 0 -1 PAT 5,272 2,482 2,970 29,465 PAT Margin 13.9% 8.9% 14.9% 46.3% Adj. PAT 5,272 2,348 2,970 1,326 Adj. PAT Margin 13.9% 8.4% 14.9% 2.1% EPS 5.15 8.32 17.52 2.26 Source: Company, KRChoksey Research Earnings Review | Pharma | Coverage: Performance Overview …(4/6)

EBITDA margin improvement across companies on YoY basis

Particulars Cadila Healthcare Glenmark Pharma Torrent Pharma Aurobindo Pharma Change % QoQ YoY QoQ YoY QoQ YoY QoQ YoY Sales -0.6% 4.3% -5.6% 1.9% -1.1% 1.5% -1.8% 8.0% Total Expenditure 1.1% 1.6% -6.0% -1.7% 0.4% -2.7% -1.1% 6.6% Material Cost -2.2% 4.0% -12.4% -1.6% 1.4% 3.7% 2.2% 0.3% Employee Cost 2.0% 1.6% -14.8% 7.1% 0.0% 2.5% -3.4% 10.4% Other expenses 4.8% -1.0% 13.7% -7.8% -0.4% -12.6% -4.9% 16.6% EBITDA -6.5% 15.6% -4.1% 20.5% -4.4% 12.4% -4.5% 13.3% EBITDA Margin (%) -134 bps 208 bps 30 bps 293 bps -106 bps 296 bps -60 bps 101 bps Depreciation 0.8% 3.6% 10.7% 8.7% 1.2% 2.5% 7.5% 10.6% EBIT -8.5% 19.6% -7.5% 24.2% -6.4% 16.7% -7.1% 14.0% Interest Expense -41.4% -66.7% 18.3% -0.7% -1.1% -18.0% 24.1% -47.5% Other Income 0.0% 36.8% -147.3% -54.2% 33.3% -84.9% 148.2% 506.6% PBT -5.9% 35.4% 2.5% 28.4% -7.0% 11.9% 235.7% 326.9% Exceptional Items NM NM NM NM 0.0% 0.0% NM NM Tax 3.7% 23.7% -5.3% 24.5% -18.9% -11.8% 173.4% 354.8% Share of associates 36.0% 121.4% 0.0% 0.0% 0.0% 0.0% NM NM Minority Interest -102.1% -132.0% 0.0% 0.0% 0.0% 0.0% NM NM PAT 11.4% 41.0% 6.1% 30.0% -4.2% 18.3% 265.5% 317.7% PAT Margin 150 bps 361 bps 98 bps 193 bps -48 bps 212 bps 3386 bps 3433 bps Adj. PAT -8.8% 39.2% 1.7% 23.0% -4.2% 18.3% -83.6% -81.3% Adj. PAT Margin -124 bps 348 bps 61 bps 145 bps -48 bps 212 bps -1035 bps -995 bps Source: Company, KRChoksey Research Earnings Review | Pharma | Coverage: Performance Overview …(5/6)

Granules India reports highest growth in revenue

Particulars (INR Mn) Alembic Pharma Granules India

Total Revenue 13,143 8,445 Total Expenditure 9,493 6,330 Material Cost 2,930 3,910 Employee Cost 2,625 831 Other expenses 3,938 1,589 EBITDA 3,651 2,116 EBITDA Margin (%) 27.8% 25.1% Depreciation 470 368 EBIT 3,181 1,747 Interest Expense 23 72 Other Income 25 164 Exceptional Items 0 0 PBT 3,183 24 Tax 591 0 Share of Associates 264 0 Minority Interest 70 0 PAT 2,926 1,468 PAT Margin 22.3% 17.4% EPS 14.89 5.9

Source: Company, KRChoksey Research Earnings Review | Pharma | Coverage: Performance Overview …(6/6)

Granules India reports robust EBITDA and Adj. PAT growth Particulars Alembic Pharma Granules India Change % QoQ YoY QoQ YoY Sales -9.8% 8.7% -1.6% 20.0% Total Expenditure -6.4% 7.4% 5.2% 17.0% Material Cost -6.1% -1.9% 8.3% 12.7% Employee Cost -4.9% 15.7% 4.3% 28.3% Other expenses -7.5% 9.8% -1.3% 23.1% EBITDA -17.7% 12.3% -17.5% 29.7% EBITDA Margin (bps) -266 bps 89 bps -483 bps 188 bps Depreciation 7.3% 12.3% 2.2% -5.5% EBIT -20.4% 12.3% -20.7% 40.7% Interest Expense -48.4% -68.6% 15.6% 7.7% Other Income -21.4% 517.1% 409.3% 367.6% PBT -20.1% 15.2% -15.4% 106.8% Exceptional Items 0.0% 0.0% NA -100.0% Tax -19.0% 21.7% -30.9% 49.1% Share of associates NM NM NA NA Minority Interest NM NM 0.0% 0.0% PAT -12.2% 24.9% -10.3% 129.3% PAT Margin -62 bps 289 bps -169 bps 829 bps Adj .PAT -12.2% 24.9% -10.3% 52.8% Adj PAT Margin -62 bps 289 bps -169 bps 374 bps Source: Company, KRChoksey Research Earnings Review | Our Top Sector Picks and Recommendations

Cipla, Glenmark Pharma, Granules India and Alembic Pharma are among top picks

Recommendation Market Cap. CMP Target Price (INR) Upside PE (x) Stocks Revised Old INR Cr. INR New Old % 5 Yr. Avg. FY22 E

Sun Pharma ACCUMULATE ACCUMULATE 14,22,770 602 645 598 7.1% 37.7 24.2

Dr. Reddy Labs BUY ACCUMULATE 7,33,385 4,450 5,123 5,418 15.1% 32.6 25.2

Cipla BUY BUY 6,30,854 792 997 950 25.8% 35.0 22.3

Lupin HOLD ACCUMULATE 4,71,638 1,054 1,081 994 2.6% 65.6 27.1

Glenmark Pharma BUY BUY 1,31,843 477 616 616 29.2% 21.2 11.5

Cadila Healthcare ACCUMULATE HOLD 4,43,383 440 483 483 9.8% 24.3 18.7

Aurobindo Pharma BUY BUY 4,97,433 841 1,044 1,044 24.1% 17.3 12.8

Alembic Pharma BUY BUY 1,79,649 924 1,286 1,286 39.2% 21.2 18.7

Granules India BUY BUY 81,658 331 459 459 38.6% 18.6 15.1

Torrent Pharma UR UR 4,12,681 2,471 UR UR UR 37.9 UR

Note: UR – Under Review Source: Bloomberg, KRChoksey Research, CMP as of 16th March 2021

89 Petrochemicals and Chemical Sector

90 Earnings Review | Petrochemical & Chemical | Summary Key Takeaways

Chemical companies witnessed YoY revenue growth in Q3FY21 • Q3FY21 revenue growth was mainly driven by growth in volume. • UPL volume growth was driven by domestic and international markets, while it was impacted in Latin America • Aarti Industries volume gain was led by growth in pharma segment. • While for RIL, the demand growth for polymers, polyester and elastomers was robust on a QoQ basis led by FMCG, Health & Hygiene, Pipes, Auto, Paint and Apparels.

EBITDA Margins expanded across the company • From our coverage universe, Supreme Petrochem reported EBITDA margin of 25.7% in Q3FY21, while in Q3FY20 it was low at 1.9%, due to lower gross margin. • Aarti Industries saw EBITDA margin expansion of 55bps YoY / 233 bps QoQ to 24.7% due to better gross margin on account of better product mix. Better product mix was partially offset by higher other expenditure. • UPL margin expanded 72bps YoY / 566 bps QoQ to 24.7% in Q3FY21, on account of gross margin expansion of 467bps YoY, which was partially offset by higher Employee cost and other expenses.

Valuation & Outlook • Specialty chemical companies are now seeing uptrend in demand with picking up of discretionary end use sector. • Aarti Industries is expected to report strong growth in pharma segment with strong growth expected from developed markets backed by integrated model and new launches. • UPL growth will be driven by a focus on differentiated solutions as well as new product launches.

91 Earnings Review | Petrochemical & Chemical | Coverage: Results Summary

Companies Revenue Margin Industry Outlook / Strategy • Consolidated Revenue for the • EBITDA margins expanded to 18.3% • RIL aggressive approach towards quarter, net of excise, stood at (up 346 bps YoY, up 127 bps QoQ) diversifying with new product, INR 1,178 bn, up by 6.0% QoQ / mainly on account of cost control acquisition (stake purchase in down 23.1% YoY; led by strong measures implemented across Urban Ladder Home Décor rebound in Oil and Gas business business line last year which resulted Solution Pvt. Ltd.) and capital on QoQ basis and rebound in in improved efficiency. contribution up to USD 50 mn in domestic demand across O2C • EBITDA was INR 216 bn, up by 13.8% Breakthrough Energy Ventures II, business. QoQ / down 5.2% YoY. L.P. (BEV) is expected to be Reliance Industries • Broadly, performance remained positive for company. subdued compared to same • RIL business reorg initiatives by quarter last year as all business carving out its diverse business segments de-grew on YoY basis interests into separate entities (R- except Digital services that O2C/Jio Platforms/Retail) and grew 32.7% YoY. ability to attract long term investors (FaceBook/Saudi Aramco /BP - Fuel retail JV) is also viewed as positive. • Earnings beat was on account • Gross Profit Margin improved • Brent crude is trading 53% higher of substantially low RM prices 2,309bps/783bps YoY/QoQ to 32.4%, to its 1Y average price while as well as return of normalcy at compared to 24.6%/9.36% in USDINR is in line with 1Y average. the plants, leaving behind Q2FY21/Q3FY20 due to lower RM • The spread between Polystyrene & COVID-19 led restrictions. costs and better pricing. Styrene Monomer has narrowed • For Q3FY21, Supreme • Higher GPM improved EBITDA margin by 30% in last one year, which Supreme Petrochem’s (SPL) revenue by 2,384 bps YoY to 25.7% (vs 1.9% in going head we believe will hamper Petrochemicals from operations increased by Q3FY20 & 16.8% in Q2FY21). Supreme Petrochem in near 49.5% YoY (+34.0% QoQ) to INR • Employee cost increased 21.4% YoY to future. 92,972 lakhs. INR 1.2 Cr but reduced to 1.3% of revenue. • Overhead expenses came down YoY to 5.4% of revenue vs 5.8% of revenue in Q3FY20.

92 Earnings Review | Petrochemical & Chemical | Coverage: Results Summary

Companies Revenue Margin Industry Outlook / Strategy • UPL’s growth was largely led by • EBITDA for the quarter grew 5.7% • Company has maintained its guidance of Strong volume growth in YoY (up 32.5% QoQ) to INR 22.5 bn 6-8% growth in revenue and 10-12% in Europe, India, North America and EBITDA margin expanded YoY EBITDA. and ROW and price to 24.7% (+566bps QoQ) in Q3FY21 • The growth will be driven by a focus on improvements. (from 23.9% last year). differentiated solutions as well as new • While Latin America was • Net Profit grew 13.3% YoY / 71.5% product launches. impacted by a delayed season in QoQ to INR 7.9bn. • Net working capital is expected to UPL Ltd. Brazil due to drought pushing • Adjusted for exceptional items, release in H2 and expected to be lower sales to Q4FY21 and unfavorable Adjusted Net Profit declined 4.7% compared to March 2020. FX. YoY (up 8.4% QoQ) to INR 7.6bn. • Volume grew 7% YoY in Q3FY21. • Reported NPM for the quarter came in at 8.7% (+82bps YoY, +352bps QoQ) while Adjusted NPM stood at 8.4% (-65bps YoY, +48bps QoQ). • Aarti Industries Limited Q3FY21 • Gross Profit Margin increased • We continue to remain positive on AIL as consolidated revenue grew 9.5% 303bps YoY / 339 bps QoQ to the company witnessed return of YoY / 1.2% QoQ to INR 11.8 bn 54.1% in Q3FY21, mainly due to demand from regular markets and a driven by volume expansion and decrease in purchase on stock in gradual recovery course in exports contribution from value-added trade and lower change in markets. products. inventories as a percentage of • The company’s capex programs and • Specialty Chemical sales grew revenue. focus on value-added products shows 3.5% YoY / -2.7% QoQ to INR 10.8 • EBITDA grew 12.1% YoY (up 12.1% strong earnings visibility over the next 2-3 Aarti Industries bn. QoQ) at INR 2.8 bn. EBITDA years. • Pharmaceutical sales grew 31.8% margin expanded 55 bps YoY (up YoY / 4.8% QoQ to INR 2.3 bn. 233 bps) to 24.0%. Employee cost as % of revenue stood at 7.6% (vs 7.7% last year) and other expenses as % of revenue stood at 22.4% (vs 19.9% last year).

93 Earnings Review | Petrochemical & Chemical | Coverage: Perf. Overview

Supreme Petrochem and Aarti Industries reported healthy YoY revenue growth

Particulars (INR Cr) Reliance Industries Supreme Petrochem UPL Ltd. Aarti Industries

Sales 1,17,860 930 9,126 1,187 Total Expenditure 96,294 700 6,876 902 EBITDA 21,566 239 2,250 285 EBITDA Margin (%) 18.3% 25.7% 24.7% 24.0% Depreciation 6,665 10 542 59 EBIT 14,901 229 1,708 226 Interest Expense 4,326 2 745 17 Other income 4,453 6 67 0 Exceptional items -121 0 -30 0 PBT 14,907 233 1,060 209 Tax 88 62 109 40 Share of Associates/Minorities -1,718 0 143 4 PAT 13,101 172 794 165 PAT Margin 11.1% 18.4% 8.7% 13.9% Adj. PAT 12,980 172 764 165 Adj. PAT Margin 11.0% 18.4% 8.4% 13.9% EPS 20.33 18.24 10.38 9.5 Adj. EPS 20.14 18.24 10 9.5

Source: Company, KRChoksey Research

94 Earnings Review | Petrochemical & Chemical | Coverage: Perf. Overview

EBITDA margin expansion across the company

Particulars Reliance Industries Supreme Petrochem UPL Ltd. Aarti Industries

Change (%) QoQ YoY QoQ YoY QoQ YoY QoQ YoY Sales 6.0% -23.1% 34.0% 49.5% 2.1% 2.6% 1.2% 9.5% Total Expenditure 4.3% -26.2% 19.3% 13.1% -5.0% 1.3% -1.8% 8.7% EBITDA 13.8% -5.2% 105.6% 1923.6% 32.5% 5.7% 12.1% 12.1% Change in EBITDA Margin (bps) 127bps 346bps 897bps 2384bps 566bps 72bps 233bps 55bps Depreciation 0.6% 20.2% 3.9% 7.0% 1.7% 9.5% 6.6% 24.7% EBIT 21.0% -13.4% 114.8% 9319.8% 46.6% 4.6% 13.6% 9.2% Interest Expense -28.9% -19.9% 91.4% 24.4% 117.2% 44.7% -22.0% -39.8% Other income 4.8% 30.8% -4.0% 185.5% -10.7% 235.0% 975.0% 16.2% Exceptional items NM NM 0.0% 0.0% NM NM 0.0% 0.0% PBT 43.3% -1.2% 108.0% 8614.1% 61.8% 2.2% 18.2% 17.1% Tax -776.9% -97.2% 137.7% 10131.3% -2.7% -45.2% 19.6% 11.5% Share of Associates/Minorities NM NM 0.0% 0.0% 110.3% 16.3% 19.9% 36.2% PAT 36.9% 8.1% 99.1% 8172.9% 71.5% 13.3% 17.8% 18.2% Change in PAT Margin (bps) 252bps 321bps 604bps 1812bps 352bps 82bps 197bps 102bps

Source: Company, KRChoksey Research

95 Earnings Review | Our Top Sector Picks and Recommendations

UPL and Reliance are among the top picks

Recommendation Market Cap. CMP Target Price (INR) Upside PE (x) Stocks Revised Old INR Cr. INR New Old % 5 Yr. Avg. FY22 E

Reliance Industries ACCUMULATE BUY 1,31,91,745 2,101 2,345 2,345 11.6% 19.0 19.7

Supreme Petrochemicals HOLD HOLD 41,092 434 435 375 0.2% 23.5 22.0

UPL Ltd. ACCUMULATE BUY 4,76,350 620 660 622 6.5% 25.0 13.1

Aarti Industries HOLD ACCUMULATE 2,23,534 1,288 1,315 1,315 2.1% 28.3 27.5

Source: Bloomberg, KRChoksey Research, CMP as of 16th March 2021

96 Oil and Gas

97 Earnings Review | Oil & Gas | Summary Key Takeaways

CNG Volumes not yet recovered to pre-covid levels; Gross Margin improvement led by lower LNG price • CNG Segment: o IGL has 562 stations with compression capacity of 83.77 lakh kg/day generating an average sale of 10.51 lakh kg/day and provided CNG to 11.57 lakh vehicles as on Q3FY21.

o IGL has its operations in NCT of Delhi, Noida, Greater Noida, Ghaziabad, Rewari, Karnal, Kaithal, Kanpur and Muzaffarnagar with 14.70 lacs residential consumers and ~6200 industrial / commercial customers more attractive drive growth in CNG segments which constitute ~72% of the sales volumes.

o MGL’s 265 total operational CNG stations of which 18 stations were operational at Raigad GA. Domestic sales volume has increased by 10% QoQ basis from 0.463 MMSCMD to 0.509 MMSCMD. Industrial and commercial segments sales volume increased by 13% QoQ basis from 0.334 MMSCMD to 0.378 MMSCMD.

o CNG stations in Raigad has crossed the average sales of 41,000 kg/day in the month of December 2020. It is expected to go up when some more CNG stations become operational in coming months. • PNG – Domestic and Commercial & Industrial connection: o IGL increased it’s steel and MDPE pipeline network from 14,605 kms in FY20 to 15,708 kms in Q3FY21. Total connections stood at 14.76 lakh in domestic and commercial (Delhi & other geographical areas) as on December 2020. o IGL has tied up long term contract for Regasified Liquefied Natural Gas (RLNG) to meet PNG Industrial & Commercial demand.

o In Raigad GA, MGL has laid 41.92 kilometer of pipeline during the quarter thereby taking the total length of pipeline to 192.33 kilometer. o MGL’s PNG industrial net realization for the quarter improved to INR 30.78/scm (as against INR 29.23/scm in Q2FY21) and commercial category net realization was at INR 33.72/scm. Earnings Review | Oil & Gas | Coverage: Results Summary (1/4)

Companies Revenue and Segment-Wise Performance

• Net Revenue for Q3FY21 came in at INR 1,446 cr (-13.1% YoY, +10.8% QoQ) mainly due to 6.5% YoY decline in volume; however, revival in demand after the lockdown getting relaxed and business activities returning to normal state led to QoQ growth. Segment-wise Performance: • Segment Contribution: Indraprastha o Q3 FY21: CNG 72%; Residential 7%; Commercial/Industrial 14%; and Sale to other CGD companies 7%; Gas Ltd o Q3 FY20: CNG 73%; Residential 6%; Commercial/Industrial 13%; and Sale to other CGD companies 8% • Q3 FY21 Performance o CNG volume down 9% YoY to 289 Million KGS, PNG Industrial/Commercial volume up 2% YoY to 84 Million SCM and Natural Gas volume down 15% YoY to 39 Million SCM in Q3FY21. While PNG Domestic volume growth of 14% YoY to 41 Million SCM. • Net revenue was reported at INR 666 cr (-10.5% YoY, +31.5% QoQ). Revenue de-growth was mainly due to a dip in CNG volumes (-15.3% YoY) partially offset by a growth in domestic PNG (+23.5% YoY). Mahanagar Gas • 9M FY21 vs 9M FY20 Performance Ltd o CNG volume down 44.6% YoY to 334.37 SCM Million, PNG Industrial / Commercial Volume down 25.76% YoY to 84.12 SCM Million and PNG Domestic volume growth of 17.44% YoY to 128.42 SCM Million. • Net revenue declined by 17.8% YoY (+17.5% QoQ) to INR 7,328 Mn owing to lower gas prices. • Dahej terminal processed 222 Trillion British Thermal Units (TBTUs), a flat growth compared to prior year period. The total Petronet LNG processed throughput reduced by 7.5% and Dahej terminal throughput fell by 8.6%. Ltd • Regasification volumes fell 6.3% YoY to 104 TBTUs (-23.0% QoQ) at its Dahej terminal. At Kochi terminal, the volume reached to 3 TBTUs. • Net revenue increased of 1.4% YoY (+31.4% QoQ) to INR 86,580 Mn, as demand rose on a sequential basis. Domestic sales stood at 11.10MMT (+24.2% QoQ). BPCL • Retail sales of Motor Spirit (Petrol) and High Speed Diesel (HSD) reached pre-COVID levels as MS/HSD/LPG grew by 15%/31%/9%, respectively, on a sequential basis.

• Net revenue of INR 7.74 bn which was declined by 3% YoY (+32.6% QoQ), helped in sequential improvement in demand with December 2020 recording highest consumption of petroleum products in last 11 months i.e. after January 2020. HPCL • The aggregate demand of petroleum products for the period Apr – Dec 2020 reached 88% of the demand for the same period last year. During Oct-Dec 2020, HPCL’s domestic sales of petroleum products increased to 10.03 million metric tonnes registering a growth of 2.7% over the corresponding quarter of previous year compared to industry growth of 0.3%. Earnings Review | Oil & Gas | Coverage: Results Summary (3/4)

Companies Margin Performance • Gross Margin / SCM stood at INR 14.6/scm up 24.1% YoY (+6.01% QoQ), led by lower natural gas price which was down by 31.0% YoY (-12.6% QoQ) to INR 10.5/scm in Q3FY21. • EBITDA margin expanded 1,108 bps YoY (+343 bps QoQ) to 34.6% due to higher gross profit and lower employee Indraprastha Gas Ltd benefit expenses (-14.2% YoY) partially offset by higher other expenses (+4.7% YoY). • PAT margin was at 23.2%, up 853 bps YoY (-274 bps QoQ) led by higher tax expenses (QoQ basis) and higher share of profit of associates & JVs.

• Gross Margin / SCM stood at INR 17.7/scm increased by (INR 3.8/scm YoY, INR 0.4/scm QoQ), led by lower natural gas price. Mahanagar Gas Ltd • EBITDA margin was at 47.53%, up 1276 bps YoY (up 393 bps QoQ) as cost of sales shrunk 35.8% YoY. • PAT stood at INR 217 cr up by 16.7% YoY (up 50.5% QoQ) due to higher effective tax rate. • PAT margin was 32.59%, up 760 bps YoY (+409 bps QoQ).

• EBITDA rose 20.6% YoY to INR 1,335 cr and margin expanded 580bps YoY to 18.2%, on account of reduction in cost of sales as a percentage of sales by 577 bps YoY, inventory gain and higher spot margins. Petronet LNG Ltd • For Q3FY21, net profit reported at INR 882 mn up 29.9% YoY (-4.1% QoQ) majorly driven by improvement in cost effectiveness and increase in other income to INR 100 mn.

• Consolidated EBITDA margin was at 5% up by 180bps YoY (-80% QoQ) on significant decline in operating expenses. Adoption of cost efficient and innovative methods aided bottom-line. BPCL • Profit after tax for Q3FY21 stood at INR 2778 mn reported a increase of 120.3% YoY (up 23.6% QoQ) after taking into account of the expenditure on ESPS scheme (INR 544cr) and the VRS scheme (INR 706cr.)

• Gross margin stood at 10.9% (+230bps YoY); however, lowered by 392bps on QoQ basis. HPCL achieved an overall combined capacity utilization of over 100% at its refineries by optimizing day to day crude run rate and regulating the product procurements from other sources during such challenging times. HPCL • Consolidated EBITDA margin was at 217.5% up by 218bps YoY (-215.2% QoQ). • Total domestic sales for petroleum products of HPCL during the period Apr – Dec 2020 was 25.4 million metric tonnes. Earnings Review | Oil & Gas | Coverage: Results Summary (4/4)

Companies Outlook / Strategy • IGL has started the sale of CNG in 8 OMC outlets and 4 DODO stations in Rewari besides the sale of PNG to domestic households. Company has commissioned 6 CNG stations in the GA. Indraprastha Gas Ltd • CNG sale has been started in Fatehpur and Hamirpur GA, Kanpur and Kaithal. • IGL has entered Gurugram to lay infrastructure and the permission has been received for area between west side of Sohna Road and NH 8 in the Gurugram district. • MGL added 47 new Industrial / Commercial PNG customers, taking the count up to 4,093. • Capex for FY21 is expected at INR 350-400cr (INR 175cr till 9MFY21) and targets upto INR 650cr for FY22. Mahanagar Gas Ltd • Added 6 new CNG stations (Total- 265) in Q3FY21 with 18 operational stations in Raigad. • It has extended domestic household network to 1.5mn (+49,171 in Q3) and led 97.19 kms of steel and PE pipeline, totaling upto >5,700kms (Raigad ~ 41.92kms in Q3; Total ~ 192.33kms). • Petronet LNG plans to expand Dahej Terminal capacity from 17.5 MMTA to 20.0/22.5 MMTA in phase 1 and phase 2, respectively. Petronet LNG Ltd • The company will also incorporate a wholly-owned subsidiary company to undertake LNG bunkering, gassing up and cool down services to LNG vessels, training, consulting, other value-added marine, transport, and LNG services. • This unit will be used to setup ~50 LNG stations on National Highways. • The management expects to do the sale of BPCL’s stake in Numaligarh Refinery Ltd (NRL) by end of Mar’21, ahead of the BPCL disinvestment. The NRL sale to an Oil India - EIL consortium was an added positive based on potential increase in pay- out. BPCL • BPCL has already announced interim dividend of INR 16/share. The Assam government has also agreed to pick up 13% additional stake in NRL at the deal valuation. • GRMs could eventually recover as current low margins are unsustainable and low oil prices may stimulate global demand for petroleum. A surplus in OPEC could widen the light-heavy oil price spread (positive for complex refiners) • The refinery throughput for the quarter Oct – Dec 2020 was 4 million metric tonnes compared to 4.16 million metric tonnes during the corresponding period of last year. • HPCL refineries processed 12.03 million metric tonnes of crude during Apr-Dec 2020 as against 12.64 million metric tonnes during the same period last year. HPCL • During the period April – Dec 2020, 1,361 new retail outlets were commissioned taking the total retail outlet network to 17,837 as of December 2020. • HPCL also added 68 new LPG dealership during Oct-Dec 2020, taking total LPG distributorships to 6,151 as of December 2020. Earnings Review | Oil & Gas | Coverage: Performance Overview (1/2)

MGL has a better margin profile compared with IGL

Profit & Loss Account CGD Energy OMC (INR Mn) IGL MGL PLNG BPCL HPCL Revenue from Operations 14462 6,664 73,282 872926 7,74,829 Expenses: COGS 6069 2,144 58,434 554565 6,12,512 Gross Profit 8393 4,520 14848 318361 162317 Gross Margin (%) 58.04% 67.82% 20.26% 36.47% 20.95% Employee benefit expenses 375 199.1 343 9629 8,922 Other expenses 3012 1153.5 1,152 42012 32,887 EBITDA 5007 3,167 13,353 2,66,720 1,20,508 EBITDA Margin (%) 34.6% 47.53% 18.2% 30.55% 15.6% Depreciation and amortisation expenses 750 441.2 1,925 10,728 8,944 EBIT 4257 2,726 11,428 552 1,11,564 Finance Cost 31 17.2 815 3454 1,323 Other income 259 203.9 997 7345 8,421 Profit/Loss before exceptional items 4485 2,913 11,610 47706 31,127 Share of profit of associates & JVs 0 0 0 7268 569 Exceptional item 0 0 0 4853 0 Profit before Tax (PBT) 4485 2,913 11,610 42853 30,558 Total Tax expense 1137 740.6 2,939 16578 7,959 PAT before Non-controlling interest 3349 2,172 8,821 19006 23,737 Non-Controlling interest 0 0 0 0 0 PAT after Non-controlling interest 3349 2,172 8,821 19006 23,737 PAT Margin (%) 23.2% 32.59% 12.0% 2.20% 3.1% Diluted EPS 5.45 21.99 73,282 7.93 15.63 Source: Company, KRChoksey Research Earnings Review | Oil & Gas | Coverage: Performance Overview (2/2)

IGL PAT margin expansion led by better operating performance Particulars IGL MGL PLNG BPCL HPCL Change % YoY QoQ YoY QoQ YoY QoQ YoY QoQ YoY QoQ Revenue from Operations -13.1% 10.8% -10.5% 31.5% -30.0% 17.5% 1.6% 31.6% -17.4% 25.7% Expenses: COGS -35.5% -0.5% -39.5% 21.1% -38.1% 23.8% -16.4% 43.1% -33.1% 41.5% Gross Profit 16.1% 20.6% 15.8% 37.1% 17.4% -2.1% 62.4% 15.5% 83.9% -11.7% 1458 474 bps Gross Margin (%) bps 1541 bps 282 bps 67.7% -16.7% 59.8% -12.2% 122.7% -29.7% Employee benefit expenses -14.2% 19.7% 3.8% -19.7% -17.0% 1.5% -0.7% -42.0% 31.0% -11.9% Other expenses 4.7% 17.0% 2.9% 37.6% -17.0% -3.0% -8.1% 7.2% -9.4% 7.7% EBITDA 27.8% 23.0% 22.4% 43.3% 23.1% -2.1% 89.6% 21.3% 144.5% -15.8% 1110 bps 340 bps -635 780 - 90 EBITDA Margin (%) 1276 bps 393 bps 580 bps -370.0 141 bps bps bps bps Depreciation and amortisation expenses 16.9% 5.5% 6.4% 3.8% -0.4% -1.4% 2.9% 5.0% 0.3% 1.3% EBIT 29.9% 26.7% 25.4% 52.7% 28.2% -2.2% -99.6% -98.6% 170.1% -17.0% Finance Cost 51.7% 32.6% 6.2% -14.0% -9.6% -4.1% -44.8% 220.4% 2.2% -51.4% -49.0% -14.5% Other income -28.6% 10.8% 68.5% -29.7% 29.2% 141.1% 102.0% 8.2% Profit/Loss before exceptional items 19.2% 23.2% 19.2% 49.4% 35.8% -5.2% 138.6% 13.6% 157.5% -3.6% Share of profit of associates & JVs -100.0% NM NM NM NM 67.1% 785.3% NM -90.6% Exceptional item NA NA NM NM 0 0 NM 340.0% 0 0 Profit before Tax (PBT) 19.2% 14.2% 19.2% 49.4% 35.8% -5.2% 174.0% 7.0% 109.1% 16.5% Total Tax expense 22.8% 816.7% 27.0% 46.1% 39.2% -6.8% 333.4% 17.0% 0.1% -7.7% PAT before Minority interest 18.0% -12.0% 16.7% 50.6% 35.4% -4.1% -7.4% -26.6% 189.7% -20.2% Minority interest NA NA NA NA 0 0 0.0% -100.0% 0 0 PAT after Minority interest 18.0% -12.0% 16.7% 50.6% 35.4% -4.1% -7.4% -16.0% 189.7% -20.2% PAT Margin (%) 610 bps (590 bps) 760 bps 409 bps 440 bps 270 bps -20 bps -240 bps -170 bps 170 bps Diluted EPS 32.9% 0.9% 16.7% 50.6% -4.1% 35.3% 27.4% -31.0% 189.3% -20%

Source: Company, KRChoksey Research Earnings Review | Our Top Sector Picks and Recommendations

Our top picks are Petronet LNG, HPCL and MGL Recommendation Market Cap. CMP Target Price (INR) Upside PE (x) Stocks Revised Old INR Mn. INR New Old % 5 Yr. Avg. FY22 E

Indraprastha Gas Ltd ACCUMULATE ACCUMULATE 3,53,465 508 574 517 13.1% 27.4 26.3

Mahanagar Gas Ltd ACCUMULATE ACCUMULATE 1,15,847 1,189 1293 1171 8.8% 19.2 13.9

Petronet LNG Ltd BUY BUY 3,48,750 237 319 319 34.7% 18.8 11.1

BPCL ACCUMULATE ACCUMULATE 9,45,777 454 485 437 6.9% 14.9 10.4

HPCL BUY BUY 3,50,438 242 325 258 34.5% 11.6 6.0

Source: Bloomberg, KRChoksey Research

Auto and Auto Ancillary Sector

105 Earnings Review | Auto | Summary Key Takeaways

Recovery in demand witnessed but sequential de-growth yet to over come • As per SIAM, In 9MFY21, Industry Passenger Vehicles sales de-grew by 16.1%, volumes stood at 1,777,874 units compared 2,117,920 units last year same period. 3-wheeler sales declined by 74% during the 9MFY21, with volume sales at 130,601 units compared to 507,254 units last year same period. The 2-wheeler sales also declined by 22.6% during the 9MFY21, with volume sales at 10,765,788 units compared to 13,913,795 units last year same period. • CV segment performance will remain challenging due to high axle norms, delayed infrastructure projects. CV sales declined by 37.2% from 507,694 units in 9MFY20 to 358,203 units in 9MFY21. 3-Wheelers to be impacted as people shun shared mobility and public transport • Industry 3-wheelers performance continues to remain laggard as it witnessed a decline of 74% YoY in 9MFY21. • This can be attributed to public transport and shared mobility being impacted due to social distancing which will in turn drive demand for personal vehicles such as entry level passenger vehicles and 2-Wheelers. Macro Developments • The announcement of major highway projects with sizeable increase in infrastructure outlay will help revive demand for both commercial vehicles and private vehicles. • The allocation for procurement of 20,000 buses will directly benefit the industry. The addition of 100 new districts to the City Gas Distribution network for natural gas will help clean, efficient and affordable mobility for the country. • While we awaits the details of the Vehicle Scrappage scheme, we hope that fitness testing and certification should be much earlier and at frequent intervals to ensure safety, environment friendliness and fuel saving. • The reduction in customs duty on some steel grades and revoking of countervailing duty and anti-dumping duty on certain steel products is a welcome step. Earnings Review | Auto | Coverage: Results Summary (1/4)

Companies Revenue Performance

• In Q3FY21, Maruti Suzuki reported revenue of INR 234,713 Mn (+13.3% YoY / +25.1% QoQ) was led by volume growth 13.4% YoY and 26.1% QoQ. • The volume growth was led by Domestic sales which grew by 13% YoY, there was a strong surge in demand in the Maruti Suzuki international market with double-digit volume growth of 20.6% YoY. • In the domestic market, the Company sold 467,369 vehicles, higher by 13% over the same period previous year. Exports were at 28,528 vehicles, higher over 20.6% over the same period previous year. • In Q3FY21, consolidated revenue grew by 5.5% YoY/ 41.3% QoQ to INR 756,538 Mn. Revenue growth was due to strong demand for M&HCV +7.0%, ILCV +10.5%, SCV & Pick Ups -9.2% and CV Passenger -71.9%. • Domestic PV volumes were up 87.5%. Domestic wholesales were higher than retails by 2.5K units in CV as pipeline inventory is rebuilt post BS VI transition to healthy levels. Domestic Retails continues to be higher than wholesales in PV Tata Motors due to continued strong demand. • JLR retail sales were 128,469 vehicles, up 13.1% QoQ / -9% YoY. Sales in China were up 20.2% QoQ and up 19.1% YoY. Most other regions also witnessed a sequential recovery though still below prior year. Sales of the new Land Rover Defender grew to 16,286 units, +66.0% over the previous quarter. • For Q3FY21, Bajaj Auto reported total revenue from operations of INR 89,099 Mn, a growth of 17.4% YoY (up 24% QoQ). • For Q3FY21 2-W domestic volumes grew by 8% YoY at 585,469 units whereas 2-W Export volume has outperformed the domestic business with a growth of 26% YoY at 484,183. However, the CV segment is still facing challenges as its domestic Bajaj Auto volume sales de-grew by 65% YoY. • Overall share in the domestic motorcycle market was 18.6% in Q3FY21 as against 17.5% in Q3FY20, increase of 110bps YoY. • In Q3FY21, the domestic 2-W continued to grow on the back of robust demand for pulsar, Dominar, KTM and Husqvarna. • Eicher Motors reported consolidated revenue from operations of INR 28,283 Mn, a growth of 19.3% YoY (+32.6% QoQ). Average price realization increased by 11.2% YoY and marginally increased by 0.4% QoQ due to higher mix of BS-VI motorcycles. Eicher Motors • Total volumes sales increased by 7.3%YoY at 209,424 vehicles due to lifting-up of lockdown and gradual revival in demand. • In its Joint venture business, VECV continued to be affected by demand slowdown in commercial vehicle space. VECV sold 9,756 trucks and buses registering a decline of 21% YoY. • Revenue in Q3FY21 increased by 19.9% YoY (+69.7% QoQ) to INR 4813.5 crores. The increase in revenue was led by volume increase of 7.1% YoY and by rise in ASP by 12% YoY. Ashok Leyland • AL’s LCV volume in 3QFY21 grew by ~27% YoY vs. industry growth of ~0.2%, leading to ~240bps YoY increase in market share. • M&HCV trucks industry volume grew by ~16% in 3QFY21 while AL’s M&HCV trucks volume grew by ~32%, leading to 320bps YoY improvement in market share to ~28.1% (remained stable QoQ).

107 Earnings Review | Auto | Coverage: Results Summary (2/4)

Companies Margin Performance • EBITDA stood at INR 22,278 Mn (+5.8% YoY), OPM reduced by 67bps YoY to 9.5% in Q3FY21, OPM was below our expectations on account of rise in raw material prices, unfavorable product mix and adverse forex fluctuation. • The sequential improvement in EBITDA was mainly due to improved capacity utilization, lower sales and advertisement Maruti Suzuki expenses, lower operating expenses due to cost reduction effort. • Net Profit stood at INR 19,967 Mn (+25.8% YoY / +40.7% QoQ), with NPM at 8.5% (+85bps YoY / +94bps QoQ). • A significant increase in the commodity cost eroded the gains of higher capacity utilization. In this quarter, in addition to precious metals, the impact of steel was also pronounced. • EBITDA increased sharply by 60% YoY/ 103% QoQ to INR 115,096 Mn o better volumes, improved product mix, lower VME and cost savings offset partially by lower proportion of CV in total sales, commodity inflation and financing costs. EBIT Tata Motors breakeven was achieved in the quarter improving 710bps YoY. • Free cash flow for the quarter was 2.2KCr, as the company drove the cost and cash savings agenda hard with 2.6KCr delivered in Q3FY21. The investment spends were reduced significantly to 547Cr for the quarter.

• Gross margins declined 87 bps YoY / 12 bps QoQ to 29.2% due to higher raw material cost. • For the quarter EBITDA margin expanded 142 bps YoY to 19.8% (+182 bps QoQ). The margin improvement was led by Bajaj Auto higher operating leverage and better product mix. • For the quarter, Net Profit grew by 188bps YoY to 19.7% INR 17,160 Mn. (+350bps QoQ) attributed to lower taxes.

• Absolute EBITDA increased by 13.5% YoY to INR 6,720 Mn while EBITDA margin contracted 122bps YoY/+168bps QoQ to Eicher Motors 23.8%. • Overall, bottom line recorded a profit of INR 5,326 Mn (+6.8% YoY) with NPM of 18.8% (-220bps YoY / +274bps QoQ). • Absolute EBITDA improved by 12.7% YoY (and 215.5% QoQ) while margins contracted by 30bps YoY (+240bps QoQ) to 5.3%. EBITDA margin improved QoQ due to recovery in volume but declined YoY as higher RM costs, unfavorable segment mix and higher employee costs (on one-off expense of Rs350mn related to leave encashment and a low base owing to reversal Ashok Leyland of bonus provisions in 3QFY20). • Overall, Adjusted Net Profit declined by 10.9% YoY (-118.4% QoQ) to INR 26.7 crores with Adjusted NPM at 0.6% (-20bps YoY/+570 bps QoQ). • EPS stood at INR 0.1 per share same as Q3FY20 but improved QoQ basis.

108 Earnings Review | Auto | Coverage: Results Summary (3/4)

Companies Industry Outlook / Strategy • The company ramped up production, while keeping health safety of the employees as priority, and made full utilization of the capacity to serve market demand despite supply chain hurdles. • To further digitize the car buying journey and provide ease and flexibility the company recently launched the Smart Finance Maruti Suzuki service. • With the launch of Smart Finance, Maruti Suzuki has become India's first OEM to offer an online end-to-end real-time car finance service facility. • The company expects demand situation to improve, the company is debottlenecking its supply chain and ramping up the output addressing the supply constraints. In Commercial Vehicles, the company will focus on increasing market share further with specific focus on SCVs, continue to enhance its customer engagement and improve the profitability of the business. Tata Motors • Going ahead , the company expects improvement in sales despite ongoing COVID impact, along with solid profit margins and positive cashflow. • The company has incurred total capex of INR 547 Cr, which was managed prudently while catering to a resurgent demand. • Exports for Q3FY21 increased by ~22% YoY with total sales of 687,111 units; whereas during 9MFY21 it reduced by 14% YoY with total sales of 1,418,702 units. • The management observed ~50%, ~90%, ~90% and ~80% recovery in Asian, Middle East, Africa and LATM, respectively and Bajaj Auto expect full recovery by Q4FY21. • Domestic 2-w continued to grow on the back of robust demand for Pulsar, Dominar, KTM, and Hasqvarna. • Pulsar 125 witnessed strong traction with sales over 164,000 units; growth of 32% QoQ. • Domestic CV business remains impacted due to inadequate demand for short distance mobility. • Strong customer connect initiatives as well as strong market acceptance of BS VI range has helped the company to gain market share across segments of LMD, HD and Bus. • The company has heavily invested in technology to digitize all its business operations which includes critical functions like Eicher Motors supply chain, CRM and many others. • The company has inaugurated new state-in-art plant at Bhopal with Industry 4.0 technology, which will bring a new era of manufacturing excellence. • The company has undertaken price increase in Q3FY21 and will take another one of ~1.5% in Q4FY21E to offset some of the squeeze. Spike in steel prices has been sharp, with further escalation seen in Q4FY21E. • Management stated that E-commerce continues to drive LCV category, while exports have done well on the back of new Ashok Leyland product introduction, reopening of some international markets and initiatives like network rejigging of distribution network in Africa. • Management also mentioned that scrappage centres are in the pipeline and also they will have tie ups for scrapyards. But all these will be decided after final notification by the government regarding the scrappage policy announced.

109 Earnings Review | Auto | Coverage: Results Summary (4/4)

Companies New Launches/Market share

• Swift, became the best-selling car with total sales over 160,700 units in CY20. • Swift has been the best-selling premium hatchback for the past 15 years, with sales over 2.3 Mn units. Maruti Suzuki • Supper Carry was sold across 235 cities through over 320 commercial outlets, it has become the second best selling mini truck in the light commercial vehicle market. • Supper Carry recorded a market share of 15% in FY20 and nearly 20% in FY21, a substantial growth of 500 bps YoY.

• Market shares of M&HCV was steady at 59%, ILCV improved sharply to 46% and SCV started improving its shares. PV market shares at 7.8%, up 300bps over FY20. • TML received order of 6,413 vehicles from Andhra Pradesh Civil Supplies Corp. Tata Motors • TML launched Ultra T.7 the most advanced LCV. • TML launched 21MY Land Rover Discovery and Velar. • TML launched 21MY Jaguar E-Pace and Jaguar F-Pace. • TML re-launched the Tata Safari – The legend. • Pulsar sold over 420,000 units in domestic and export markets which were highest ever. • Boxer sold over 380,000 units in various international markets which were highest ever. Bajaj Auto • Total exports were over 687,000 units which were highest ever; this was despite shortage of containers. • Overall share in the domestic motorcycle market was 18.6% in Q3FY21 against 17.5% in Q2FY21 and 18.5% in FY20. • Market share for Pulsar 125 in its segment has grown to 22.8% for Q3FY21.

• During Q3FY21, the company has launched Meteor 350, an easy and accessible cruiser in India and across Europe, Thailand, and Australia. • The company has also launched its 1st flagship store in Tokyo, Japan becoming the 1st Indian premium motorcycle brand Eicher Motors to set-up a standalone store in Japan. • In addition to this, 13 new exclusive stores were opened with focus on LATAM, and ASEAN markets. • The company launched the Classic 350in two colorways along with alloy wheels and tubeless tyres.

• AL continued with its product launches of Boss LE and LX in the ICV segment during Q3FY21. All these products were Ashok Leyland launched with the innovative i-Gen6 (Mid-NOx) technology which have been very well received by customers, helping the company increase its market presence.

110 Earnings Review | Auto | Coverage: Performance Overview (1/2)

Margin highest for Bajaj Auto & Eicher Motors due to favourable currency and better cost rationalization

Particulars (INR Cr) Maruti Suzuki Tata Motors Bajaj Auto Eicher Motors Ashok Leyland

No of vehicles 495,897 274,172 1,306,810 209,424 33410 Sales 234,713 756,538 89,099 28,283 5954 Total Expenditure 220,145 717,758 72,476 21,562 5889 Cost of Raw Materials 110,442 452,534 59,931 16,730 3765 Purchase of Stock 57,575 36,265 4,865 853 235 Changes in Inventories 2,188 (9,701) -1,713 -1,078 -211 Employee Cost 9,543 75,622 3,173 2,335 607 Other expenses 32,687 80,491 5,557 2,723 812 EBITDA 22,278 115,096 17,284 6,720 254 EBITDA Margin (%) 9.5% 15.2% 19.8% 23.8% 5.3% Depreciation 7,420 61,288 650 1,229 213 EBIT 14,858 53,809 16,633 5,491 59 Interest Expense 290 21,259 10 36 469 Other Income 9,938 7,120 3,692 1,250 46 Exceptional Items 0 4,226 0 0 -46 PBT 24,506 41,674 21,925 6,705 -18.2 Tax 5,136 9,452 4,765 1,694 1.1 Share of Associates/Minorities 0 (350) 0 314 0.1 PAT 19,967 29,064 17,160 5,326 -19.4 PAT Margin 8.5% 3.8% 19.7% 18.8% -0.32% EPS 66.10 8.08 59.3 19.5 0.1

Source: Company, KRChoksey Research Earnings Review | Auto | Coverage: Performance Overview (2/2)

Overall, the sector recovered in Q2FY21 Particulars Maruti Suzuki Tata Motors Bajaj Auto Eicher Motors Ashok Leyland Change % QoQ YoY QoQ YoY QoQ YoY QoQ YoY QoQ YoY No of vehicles 26.1% 13.4% 22.4% -0.6% 24.1% 8.7% 32.0% 7.3% 71.8% 7.1% Sales 25.1% 13.3% 41.3% 5.5% 24.5% 16.6% 32.6% 19.3% 54.5% 14.7% Total Expenditure 25.0% 12.9% 30.5% 0.8% 21.7% 14.4% 48.9% 15.8% Cost of Raw 24.6% 31.3% 33.2% 17.3% 25.5% 26.8% 32.7% 52.6% Materials 78.5% 90.4% Purchase of Stock 27.5% 7.7% 17.5% 15.4% 40.2% 11.3% 22.6% 58.1% 5.3% -8.5% Changes in (183.6%) (76.4%) -73.1% -120.6% 173.3% -196.6% NM NM Inventories -238.0% -122.3% Employee Cost 14.5% 8.9% 18.0% -2.3% -2.2% -9.0% 12.6% 26.5% 18.4% 46.3% Other expenses 13.9% 7.0% 6.5% -20.5% 9.6% -4.5% 16.9% 10.5% 39.9% -3.3% EBITDA 15.0% 5.8% 103.2% 59.9% 36.5% 26.5% 42.7 13.5% 172.3% -0.8% EBITDA Margin (%) -83 bps -67 bps 463 bps 517 bps 182 bps 142 bps 168 bps -122 bps (181 bps) (919 bps) Depreciation (3.2%) (13.7%) 9.4% 17.9% 1.1% 5.4% 17.2% 29.1% 10.7% 18.1% EBIT 27.0% 19.3% NM 169.4% 38.4% 27.4% 49.9% 10.5% 553.1% -6.7% Interest Expense 28.3% 30.6% 9.04% 21.93% -61.5% 117.0% (5.8%) (15.5%) -4.2% 0.2% Other Income 67.8% 26.7% 12.4% -20.9% 29.2% 0.8% 25.1%) (7.2%) 85.6% 133.6% PBT 40.9% 22.1% -611.54% 208.71% 47.7% 26.6% NM NM -128.7% -10.6% Exceptional Items - - NM NM NA NA NA NA 970.6% 738.7% Tax 36.2% 17.0% -300.5% -256.3% 37.4% 16.3% 47.0% 16.5% -93.6% -98.3% Share of associates - - -197.25% -82.36% NA NA (915.1%) 89.4 -88.9% -78.7% PAT 40.7% 25.8% NM 67.20% 50.8% 29.8% 55.1% 6.8% -95.1% -132.1% PAT Margin 94 bps 85 bps 443 bps 142 bps 350 bps 188 bps 274 bps -220 bps 1005 bps (85 bps) Source: Company, KRChoksey Research Earnings Review | Auto Ancillary | Summary Key Takeaways

Healthy growth as demand recovers • The strong recovery in end market demand across sector continued into this quarter enabling the company to register healthy double digit-growth in key parameters. The union budgets focus on infrastructure development along with the vehicle scrapping policy bodes well for both the Commercial Vehicles & Industrial sector growth over the medium term. • Agriculture demand remains stronger. Other sectors demand stable. • Significant changes in product mix due to evolving demand scenario in the end market. • Modernization, Automation, Upgradation and Addition of new equipment were the key strategies adopted by players to increase productivity, quality and efficiency. • Aerospace, renewable energy and defence are the key sectors with potential growth momentum in near future. Performance overview • Balkrishna Industries has strengthened its distribution channels within the Indian market • Balkrishna is expected to reach 100% utilization levels at Bhuj plant in next few years. • Bharat Forge Industrial business showed sequential as well as YoY growth in Q3FY21 as the economy re-opened and started recovering. Increased infrastructure spending, mobilization of construction projects and mining activities are expected to improve fleet utilization and M&HCV demand further in the coming quarters. Gearing up new launches to bolster sales ahead of festive season; Rural recovery expected to boost domestic demand • Rural market led by good monsoon and robust crop output is expected to show strong growth as compared to urban region . • This will drive the demand for Tractor, Small Commercial Vehicles and Motorcycle in coming quarters.

113 Earnings Review | Auto Ancillary | Coverage: Results Summary (1/3)

Companies Revenue • Minda Corporation Ltd (MCL), reported consolidated revenue of INR 7.4 bn which was up by 36.1% YoY (+12.8% QoQ), on account of mechatronics and aftermarket/other segment revenue growth which forms 58% of overall revenue. Minda Corporation • Better consolidated revenue for the quarter argely aided by factors like transition from BS IV to BS VI, increased wiring harness content in two-wheeler category as well as increased exports (+25%) and aftermarket sales (+55%). • Minda Industries Ltd (MIL) reported consolidated revenue increased of 36% YoY and (up +23% QoQ) to INR 18,016.2 Mn, led by favourable demand environment and commercial sale from 2W alloys plant. Minda Industries • The company received new orders received for panel switches from Indian OEMs ; in the Lighting business, the company has received orders of LED light from Yamaha ; Sensor Business - Started Manufacturing and supply of Wheel speed Sensor for Korea. • SFL Q3FY21 consolidated revenue grew by 34.9% YoY and (24.7%% QoQ) to INR 1108.69 Crores. The company is a beneficiary of its established relationship with OEMs. Its key clients such as Maruti Suzuki, Tata Motors and Ashok Leyland Sundaram Fasteners continue to deliver strong volume growth in Q3FY21. • SFL was also a beneficiary of improved automotive business scenario in USA, UK and China, which together contributes ~88% of its exports. The exports contribute ~36% of its total revenues. • Balkrishna Industries reported total revenue of INR 15,092 Mn, a significant rise of 30% YoY (-4.4% QoQ) owing to strong recovery in sales volume of 26% YoY 59,810 MT. • The volume recovery was mainly due to strong demand from agriculture segment across all geographies. In the other Balkrishna Industries segments, demand continues to remain stable post the recovery in the end markets of industrial, construction and mining segment. • During the quarter under review sales from agriculture accounted for 64%, whereas OTR and others accounted for 33% and 3% respectively. • For Q3FY21, Bharat Forge reported revenue from operations of INR 17,231 Mn, a decline of 5.9% YoY (+25.2% QoQ). The strong recovery in the end market demand across sector continued during the quarter enabled the company to register Bharat Forge healthy double-digit growth. Total shipment tonnage grew by 8.4% YoY (+25% QoQ) to 50,943. • Domestic revenue registered significant recovery with double-digit growth of 26.5% YoY (27.8% QoQ) to INR 5,158 Mn. • Export revenue declined 19.5% YoY / +10.7% QoQ to INR 5,1172 Mn, largely driven by America and Europe. • Endurance Technologies Q3FY21 revenue inreased sharply by 24.4% YoY and 15.3%% QoQ to INR 20.4 Bn, increase in topline was mainly on account strong growth in Motorcycle (+17.7% YoY) and 2-wheelers (+14.5% YoY). Aftermarket Endurance Technology business also increased by 28.1% YoY. • European business revenue declined by 3.6% YoY since in EU new car registrations reduced by 7.6% YoY.

114 Earnings Review | Auto Ancillary | Coverage: Results Summary (2/3)

Companies Margin • Gross margin stood at 37.3% by +83bps QoQ; however, lowered by 365bps on YoY basis. This was largely due to increase in raw material prices and low labour productivity. Minda Corporation • The consolidated EBITDA for the quarter stood at INR 818.2 mn up by 12.62% YoY. EBITDA margin stood at 11.1% was impacted by raw material inflation and increased operating expenses. • Consolidated EBITDA margin was at 14.63% up by 236bps YoY and 23% QoQ, on account of acquired new customer John Deere and also commercial sales started and new orders received from OEM. Minda Industries • Profit after tax for Q3FY21 stood at INR 1296.3Mn reported a increase of 138% YoY (and up 37% QoQ). PAT margin stood at 7.2% which was higher by 310bps YoY.

• EBTIDA for the quarter stood at INR 202.6 crores grew by 74.6% YoY (up 25.9% QoQ) while EBITDA margin reported at 21.5% as compare to 16.8% in corresponding quarter last year and 21.0% in Q2FY21. Growth in EBITDA margin aided by price hikes, cost Sundaram reductions and operating leverage benefits. Fasteners • For Q3FY21, SFL reported Net Profit of INR 124.2 crores, up 20.6 % YoY and Net Profit of INR 96.8 crores in Q2FY21. PAT margin for the quarter stood at 13.18% as against 12.62% in Q3FY20. • EBITDA improved by 40.4% YoY to INR 4,794 Mn, while EBITDA margin expanded by 234 bps YoY due better product mix and operational efficiency. Balkrishna • PAT increased by 47.2% YoY to INR 3,250 Mn, PAT margin improved by 251 bps YoY to 21.5%. EPS stood at INR 16.8 (vs INR 11.42 in Industries Q3FY20). • The company is now long-term debt free with cash and cash equivalents of INR 1,423 crs as on 31st December 2020. • The Company reported Absolute EBITDA of INR 2,838 Mn (+33.5% YoY), with OPM at 16.5% (+433 bps). The margins were driven by improvement in performance of overseas operations. • PAT during the quarter reported loss of INR 2,104 Mn due to higher exceptional item of INR 2,995 Mn. The NPM stood at -12% (- Bharat Forge 1,442 bps YoY / -1,212 bps QoQ). • BFL continues to focus on restructuring, operational optimization and cost improvement across business segment to stabilize margins. • EBITDA for Q3FY21 increased by 31.4% YoY and 11.8% QoQ to INR 358 crores, while EBITDA margin increased 140 bps YoY and (-60 bps QOQ) to 17.5%. Strategy on the product mix of castings, with more machined castings, going into four-wheeler castings resulted Endurance in better performance in EBITDA and margin. Technology • ETL reported net profit of INR 201 crores as compare to net profit of INR 124 crores in corresponding quarter last year. Adj. PAT increased by 62.3% YoY to Rs. 201cr supported by decrease in effective tax rate by 6.1% YoY.

115 Earnings Review | Auto Ancillary | Coverage: Results Summary (3/3)

Companies Industry Outlook / Strategy

• On YTD basis, it has booked INR 54.8 bn worth of orders from the start of the year. For the quarter, it has INR 16.5bn worth orders of which ~60% is 11.5 mn worth were replacement business lifetime order whereas INR 5bn were for new businesses. Minda Corporation • Increase in localization of content in the BSVI compliant product, product mix and improving productivity will help to improve and sustain margins over next 3 years. • 9MFY21 capex stood at INR 92 crores. The management plans to provide capex as a 4-6% of revenue as per their traditional structure. • MTG will merge with Toyoda Gosei Minda India Private Limited (TGMIN), consistent new order inflows across all the businesses that too in value added products presents excellent growth opportunity for the company as demand scenario normalizes. Minda Industries • Recently new orders New orders received for Steering Wheel Switch, second gear switch driver side switch, Power window ,Sunroof Switches, Audio, received new Business from MSIL scale. Capex for Green field plan for Blow moulded parts at new location to enhance overall capacity and setting up in house paint shop facility. • Exports is one of the key focus areas for SFL, as it continues to be a significant contributor to overall revenue. The company’s long-term goal is to make exports contribution to be more than 50% of revenue from 36% currently. Sundaram Fasteners • SFL is planning to foray into new businesses such as electric vehicles, aerospace and defense and enter these markets by establishing markets in India first and then expanding globally. • The management has approved a capex plan of INR 1,900 Cr to increase the tire capacity for its brownfield project at Bhuj. It will also increase carbon black capacity including advance carbon black and power plant at Bhuj. Balkrishna Industries • The proposal for new capex includes debottlenecking and brownfield expansion along with addition of balancing and ancillary equipment at Bhuj. This expansion will add 50,000 MTPA capacity at a cost of INR 800 Cr which is expected to complete in next 2 years. • Industrial business showed sequential as well as YoY growth in Q3 FY21 as the economy re-opened and started recovering. Bharat Forge • Focus on infrastructure spending by the Government would provide impetus in the near to medium term. • International Heavy truck market ended the most challenging year on a high note with order volume for Q4 CY20 one of the strongest ever. • Management states that ETL will also start supplies of brake assemblies, suspensions and aluminium castings, including the Endurance Technology battery housing castings, for electric scooters and three wheelers. The focus is on getting business from OEMs and OEM- funded companies because of their financial strength.

116 Earnings Review | Auto Ancillary | Coverage: Performance Overview

Minda Sundaram Balkrishna Endurance Particulars (INR Cr) Minda Industries Bharat Forge Corporation Fasteners Industries Technology Sales 739 1,802 1109 15,092 17,231 2041 Total Expenditure 692 1,647 928 10,299 14,393 1689 EBITDA 47 155 181 4,794 2,838 352 EBITDA Margin (%) 7% 9% 16.3% 31.8% 16.5% 17% Depreciation 24 91 45 1,046 1,609 104 EBIT 23 64 136 3,748 1,229 248 Interest Expense 10 19 5 21 336 4 Other income 10 10 10 546 380 6 Exceptional items 0 0 0 0 2,995 - PBT 23 55 141 4,274 28 250 Tax 14 43 46 1,025 345 48 Share of 0 0 (37) Associates/Minorities 6 - 0 PAT 50 121 144 3,250 (2,104) 190 PAT Margin 6.6% 7% 12.9% 21.5% -12.2% 9.3% Adj. PAT 50 121 144 3,250 (2,104) 190 Adj. PAT Margin 6.6% 7% 12.9% 21.5% -12.2% 9.3% EPS 2.1 4 6.7 16.8 -4.5 13.5 Adj. EPS 2.1 4 6.7 16.8 -4.5 13.5

117 Earnings Review | Auto Ancillary | Coverage: Performance Overview

Endurance Particulars (INR Cr) Minda Corp. Minda Ind. Sundaram Fast. Balkrishna Ind. Bharat Forge Tech. Change (%) QoQ YoY QoQ YoY QoQ YoY QoQ YoY QoQ YoY QoQ YoY Sales 12.7% 10.1% 23.0% 35.8% 24.7% 34.8% -4.4% 30.0% 25.2% (5.9%) 15.3% 24.4% Total Expenditure 17.3% 8.8% 23.0% 32.2% 30.5% 25.6% -0.8% 25.7% 19.0% (10.5%) 15.9% 22.4% EBITDA -29.9% 34.3% 22.8% 61.0% 1.1% 115.5% -11.2% 40.4% 70.7% 27.7% 12.5% 34.9%

Change in EBITDA Margin -246 320 bps 600 bps 300 bps 234 bps 438bps 433bps -68 100 (bps) 180 bps 380bps 750bps bps bps bps Depreciation -4.0% -20.0% 12.3% 21.3% 0.0% 7.1% 0.5% 10.2% 5.8% 23.5% 7.2% 4.0% EBIT -53.1% 360.0% 29.1% 94.4% 1.5% 7.9% -14.0% 52.0% 763.8% 33.5% 14.8% 54.0% Interest Expense -9.1% -9.1% 5.6% -13.6% 66.7% -61.5% -46.4% 11.4% 133.2% (22.0%) NM NM Other income 42.9% -33.3% -23.1% -9.1% 25.0% -16.7% 170.7% 81.7% 13.5% 2.2% -14.3% -50.0% Exceptional items NM NM NM NM NM NM NM NM NM NM NM NM PBT (51.1%) 220.0% 27.1% 110.3% 1.4% 12.8% (52.2%) (36.2%) (8.6%) (127.3%) 14.2% 47.9% Tax 27.3% 7.7% -2.3% 126.3% 31.4% 130.0% -8.0% 89.3% 19.7% 263.9% -7.7% 9.1% Share of -400.0% 20.0% - - -100.0% NM NM NM NA NA NA NA Associates/Minorities PAT 92.3% 19.0% 49.4% 128.3% 39.8% 37.1% -4.7% 47.2% NM NM 13.8% 53.2%

Change in PAT Margin (bps) 300bps 100 bps -8 bps 251 bps NM NM 520 180 270 bps 30 bps 100 bps 20 bps bps bps

118 Earnings Review | Our Top Sector Picks and Recommendations

Our top picks remain Bajaj Auto, Sundaram Fasterners and Minda Corporation

Recommendation Market Cap. CMP Target Price (INR) Upside PE (x) Stocks Revised Old INR Mn. INR New Old % 5 Yr. Avg. FY22 E

Tata Motors ACCUMULATE ACCUMULATE 10,49,549 320 360 133 12.5% 13.9 19.8

Maruti Suzuki BUY ACCUMULATE 21,54,495 7,150 8,505 7,182 18.9% 30.4 34.5

Bajaj Auto BUY ACCUMULATE 10,48,955 3,654 4,275 3,410 17.0% 18.9 21.4

Ashok Leyland ACCUMULATE ACCUMULATE 3,52,850 123 135 99 9.5% 32.2 27.4

Eicher Motors UR UR 7,26,636 2,661 UR UR UR 38.5 UR

Minda Corporation BUY BUY 23,729 98 115 90 17.4% 21.4 16.5

Minda Industries HOLD HOLD 1,54,782 569 580 403 1.9% 36.8 44.6

Sundaram Fastners HOLD ACCUMULATE 1,66,842 788 800 532 1.5% 31.0 35.8

Balkrishna Industries ACCUMULATE ACCUMULATE 3,15,107 1,639 1,764 1,417 7.6% 29.3 53.1

Bharat Forge UR UR 2,82,383 611 UR UR UR 38.1 UR

Endurance Technology UR UR 1,95,388 1,398 UR- UR UR 35.7 UR

Note: UR – Under Review Source: Company, KRChoksey Research, CMP as of 16th March 2021

119 Holding Companies

120 Earnings Review | Holding Companies | Summary Key Takeaways

Revenue witnessed recovery, driven by improved performance of underlying holdings • Holding companies reported a healthy growth in revenues on a YoY basis, supported by buoyant financials of their underlying portfolio companies. • EID Parry, Ramco Industries and Pilani Investments witnessed a recovery in revenue growth on YoY as well as QoQ. Expansion in margins on a YoY basis • EBITDA margin expanded for all the holding companies on a YoY basis, driven by higher revenues and lower expenses. • Bajaj Holdings and Ramco Industries reported significant improvement in EBITDA margins in the range of 650 to 1,050 bps increase on a YoY basis. Valuation & Outlook • Bajaj Holdings, EID Parry, Ramco Industries are trading above their five-year Price/NAV discount average, offering upside potential for investor to invest.

121 Earnings Review | Holding Companies | Coverage: Results Summary

Companies Revenue Margin Industry Outlook / Strategy

• Bajaj Auto recorded its highest ever • Revenues grew 15.7% YoY/down • EBITDA margin fell 804 bps QoQ/up Bajaj Holdings profits with an increase of 30% YoY . 13.5% QoQ to INR 100 Cr. 1,070 bps YoY to 73.3%. • Bajaj Finserv profits rose 15% YoY on strong traction in insurance business • Performance was impacted due to increase in Fair & Remunerative Price of Sugar and reduced sugar selling prices. Cane crush is expected to be • Revenue grew 15.2% YoY/down 19.4% • EBITDA margin expanded 33 bps YoY / EID Parry marginally better. QoQ to INR 4,701 Cr. lower by 2,981 bps QoQ to 12.0%. • Board has approved the closure of Pettavaithalai unit and sold 4% in Coromandel International for debt reduction. • Company has an irrevocable option of shifting to a lower tax rale and simultaneously forgo certain tax incentives, deductions and • Revenue grew 16.2% QoQ/52.5% YoY • EBITDA margin expanded 650 bps YoY accumulated MAT credit. Ramco Industries to INR 303Cr. (down 62 bps QoQ) to 15.9%, • The Company has not exercised this option for the FY21 in view of the benefits available under the existing tax regime.

• It allotted 31,63,500 Bonus Equity Shares of INR 10 – each fully paid up on January 04, 2021 in the proportion • Revenue grew 50.1% YoY / down • EBITDA margin grew 187 bps QoQ / 121 Pilani Investments of 2 Equity Shares for every 5 Equity 20.7% QoQ to INR 49 Cr. bps YoY to 97.4% Shares held by the Equity Shareholders of the Company as on the record date of January 02, 2021.

122 Earnings Review | Holding Companies | Coverage: Perf. Overview (1/2)

Increase in topline for Holding Companies on a YoY basis

Particulars (INR Cr) Bajaj Holdings EID Parry Ramco Industries Pilani Investments

Sales 100.3 4701.2 303.8 49.1 Total Expenditure 36.1 4267.1 265.8 16.7 EBITDA 73.5 565.2 48.3 47.8 EBITDA Margin (%) 73.3% 12.0% 15.9% 97.4% Depreciation 8.4 83.0 8.3 0.1 EBIT 65.2 482.2 40.0 47.7 Interest Expense 0.9 48.1 2.0 15.3 Other income 13.3 -6.5 1.9 0.0 Exceptional items 0.0 -97.8 0.0 0.0 PBT 77.5 329.8 39.9 32.4 Tax 23.9 84.7 16.4 7.8 Share of Associates/Minorities 1097.3 0.3 48.2 10.6 PAT 1150.9 245.4 71.7 35.2 PAT Margin 1147.1% 5.2% 23.6% 71.7% Adj. PAT 1150.9 343.2 71.7 35.2 Adj. PAT Margin 1147.1% 7.3% 23.6% 71.7% EPS 103.3 6.0 8.6 31.8 Adj. EPS 103.3 8.4 8.6 31.8

Source: Company, KRChoksey Research

123 Earnings Review | Holding Companies | Coverage: Perf. Overview (2/2)

Expansion in margins on a YoY basis

Particulars Bajaj Holdings EID Parry Ramco Industries Pilani Investments

Change (%) QoQ YoY QoQ YoY QoQ YoY QoQ YoY Sales -13.5% 15.7% -19.4% 15.2% 16.2% 52.5% -20.7% 50.1% Total Expenditure 16.4% -16.6% -16.4% 13.0% 16.3% 38.5% 2.1% 34.9% EBITDA -22.1% 35.5% -35.5% 18.5% 11.8% 157.8% -19.2% 52.0% Change in EBITDA Margin (bps) -803.6 1,070.2 -298.1 33.7 -62.5 649.9 187.5 121.3 Depreciation 0.0% 1.3% -0.8% 1.6% 1.1% 6.9% 0.0% 12.1% EBIT -24.2% 41.6% -39.1% 22.0% 14.3% 265.0% -19.2% 52.1% Interest Expense -3.1% -63.6% -18.1% -46.8% -4.3% -44.0% 13.7% 38.8% Other income 30.4% -28.0% -147.7% -120.2% -40.3% -44.0% NA -100.0% Exceptional items NA NA NA NA NA -100.0% NA NA PBT -18.6% 25.2% -55.9% -2.2% 10.6% 238.6% -28.9% 59.3% Tax -13.4% 16.7% -54.3% 12.0% 20.3% 110.9% -22.9% 52.9% Share of Associates/Minorities 37.1% 21.9% -76.1% -176.5% -14.5% 129.0% -327.2% -10.5% PAT 32.6% 22.2% -56.4% -6.1% -9.1% 186.2% 14.4% 29.9%

Source: Company, KRChoksey Research

124 Earnings Review | Our Top Sector Picks and Recommendations

EID Parry and Pilani Investments are top picks

Recommendation Market Cap. CMP Target Price (INR) Upside P/NAV Discount Stocks Revised Old INR Cr. INR New Old % 5 Yr. Avg. Current

Bajaj Holdings BUY BUY 3,91,764 3,503 4,166 4,166 18.9% 53% 60%

EID Parry BUY BUY 62,225 346 463 463 33.9% 32% 65%

Ramco Industries ACCUMULATE BUY 22,753 260 280 280 7.6% 52% 58%

Pilani Investments BUY ACCUMULATE 18,915 1,712 2,044 2,541 19.4% 74% 93%

Source: Bloomberg, KRChoksey Research, CMP as of 16th March 2021

125 Miscellaneous

126 Earnings Review | Miscellaneous | Coverage: Results Summary

Companies Revenue Margin Industry Outlook / Strategy • EBITDA margin contracted 170 bps • long-term growth driver in polymer • Emmbi Industries’s Q3FY21 revenue from YoY / 63 bps QoQ to 10.3% processing will be green polymers – operations declined 9.7% YoY (up 28.9% attributable to higher Employee substances that have the same QoQ) to INR 736 mn. cost as % of revenue (7.0% in Emmbi functionality as current polymers, • Decline in revenue is attributed to the Q3FY21 vs 5.8% in Q3FY20), and but a lower environmental impact, extraordinary negative effects of the other expenses as % of revenue hence it has designed new product Pandemic. (18.8% in Q3FY21 vs 15.6% in Emmbi EcoSafe. Q3FY20).

• Explosive's sales volume declined • GPM contracted 84bps YoY / 528 marginally by 0.14% YoY (up 24.7% QoQ) bps QoQ to 5.6% in Q3FY21. • Capex incurred till Q3FY21 stood to 86,265 MT, while realization grew 0.3% • EBITDA margin improved 28 bps at INR 180.22 Cr, and company Solar YoY / 0.7% QoQ to INR 32,304/MT. YoY (declined 96 bps QoQ) mainly has planned capex of INR 210 Cr • Housing and Infra revenue contribution on account lower other expenses for FY21. in Q3FY21 rose to 26% of revenue as % of revenue. compared to 23% in Q3FY20.

• Q4CY20, total revenue rose 5.5% • The quarter was marked by orders QoQ(down 12.9% YoY) to INR 17,008 mn • EBITDA margin of 6.0% in Q4CY20 in the areas of power distribution, driven by increase in revenue across was down 105 bps yoy (down 150 renewables, construction, energy, business segments due to continued bps qoq). and mining segments. focus on execution of order backlog. • Net profit from continued • In the domestic market, the • Electrification and Motion businesses de- ABB operations came at INR 622 mn for resilient nature of certain grew 22.3% yoy (up 8.9% qoq), Motion the quarter; down 3.8% yoy; down segments and industries is business de-grew 5.3% yoy (down 3.0% 27.2% qoq with margin of 3.7% for reflected in the early signs of qoq), Robotics and Discrete Automation the quarter. revival witnessed in datacenters, de-grew 33.8% yoy (down 4.0% qoq) renewables, electronics, food and while Industrial Automation business beverage, pharmaceuticals, etc. declined 6.6% yoy (up 5.3% qoq)

127 Earnings Review | Miscellaneous | Coverage: Performance Overview

Solar Industries reported YoY revenue growth; while it declined for Emmbi Industries and ABB

Particulars (INR Cr) Emmbi Industries Solar Industries ABB

Sales 74 646 1,701 Total Expenditure 71 514 1,598 EBITDA 8 132 103 EBITDA Margin (%) 10.3% 20.5% 6.0% Depreciation 2 24 30 EBIT 6 108 73 Interest Expense 3 11 7 Other income 0 13 14 Exceptional items 0 0 0 PBT 3 110 80 Tax 1 29 18 Share of Associates/Minorities 0 0 0 PAT 2 78 62 PAT Margin 3.2% 12.1% 3.7% Adj. PAT 2 78 58 Adj. PAT Margin 3.2% 12.1% 3.4% EPS 1.3 8.6 2.9 Adj. EPS 1.3 8.6 2.7

Source: Company, KRChoksey Research

128 Earnings Review | Miscellaneous | Coverage: Performance Overview

Solar Industries reported YoY EBITDA margin expansion

Particulars Emmbi Industries Solar Industries ABB

Change (%) QoQ YoY QoQ YoY QoQ YoY

Sales 28.9% -9.7% 10.0% 15.1% 5.5% -12.9%

Total Expenditure 27.3% -7.9% 11.3% 14.7% 7.2% -11.9%

EBITDA 21.5% -22.5% 5.1% 16.7% -15.5% -25.9%

Change in EBITDA Margin (bps) -63bps -170bps -96bps 28bps -150bps -105bps

Depreciation 5.0% 3.2% 2.1% 10.6% 19.8% 32.2%

EBIT 28.1% -28.3% 5.7% 18.2% -24.5% -37.1%

Interest Expense -3.8% -11.8% -6.3% -22.5% 147.5% 46.5%

Other income -38.9% -18.5% 607.5% 40.6% -28.5% -62.6%

Exceptional items 0.0% 0.0% 0.0% 0.0% NM NM

PBT 80.9% -38.7% 19.5% 27.2% -29.5% 0.5%

Tax 42.7% -49.9% 16.8% 33.4% -36.1% 18.9%

Share of Associates/Minorities 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

PAT 95.7% -34.5% 19.7% 25.9% -27.2% -3.8%

Change in PAT Margin (bps) 109bps -121bps 98bps 104bps -165bps 35bps

Source: Company, KRChoksey Research

129 Earnings Review | Our Top Sector Picks and Recommendations

Emmbi Industries is our preferred pick in Miscellaneous sector

Recommendation Market Cap. CMP Target Price (INR) Upside PE (x) Stocks Revised Old INR Cr. INR New Old % 5 Yr. Avg. FY22 E

Emmbi Industries ACCUMULATE BUY 1,380 80 92 92 15.4% 17.0 8.8

Solar Industries HOLD HOLD 1,18,271 1,322 1,350 1,071 2.1% 40.4 29.9

ABB HOLD HOLD 3,05,032 1,442 1,510 1,196 4.7% 87.4 57.9

Source: Bloomberg, KRChoksey Research, CMP as of 16th March 2021

130 Disclaimer

Terms & Conditions and other disclosures: • KRChoksey Shares and Securities Pvt. Ltd. (hereinafter referred to as KRCSSPL) is a registered member of National Stock Exchange of India Limited and Bombay Stock Exchange Limited. KRCSSPL is a registered Research Entity vides SEBI Registration No. INH000001295 under SEBI (Research Analyst) Regulations, 2014. • We submit that no material disciplinary action has been taken on KRCSSPL and its associates (Group Companies) by any Regulatory Authority impacting Equity Research Analysis activities. • KRCSSPL prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analyst cover. • The information and opinions in this report have been prepared by KRCSSPL and are subject to change without any notice. 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 of KRCSSPL. While we would endeavor to update the information herein on a reasonable basis, KRCSSPL is not under any obligation to update the information. Also, there may be regulatory, compliance or other reasons that may prevent KRCSSPL from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or KRCSSPL policies, in circumstances where KRCSSPL might be acting in an advisory capacity to this company, or in certain other circumstances. • This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall 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. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. KRCSSPL will not treat recipients as customers by virtue of their receiving this report. 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. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. KRCSSPL accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. Our employees in sales and marketing team, dealers and other professionals may provide oral or written market commentary or trading strategies that reflect opinions that are contrary to the opinions expressed herein, .In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. • Associates (Group Companies) of KRCSSPL might have received any commission/compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of brokerage services or specific transaction or for products and services other than brokerage services. • KRCSSPL or its Associates (Group Companies) have not managed or co-managed public offering of securities for the subject company in the past twelve months • KRCSSPL encourages the practice of giving independent opinion in research report preparation by the analyst and thus strives to minimize the conflict in preparation of research report. KRCSSPL or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither KRCSSPL nor Research Analysts have any material conflict of interest at the time of publication of this report. • KRCSSPL or its associates (Group Companies) collectively or its research analyst do not hold any financial interest/beneficial ownership of more than 1% (at the end of the month immediately preceding the date of publication of the research report) in the company covered by Analyst, and has not been engaged in market making activity of the company covered by research analyst. • 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 KRCSSPL and affiliates 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 investor persons in whose possession this document may come are required to inform them of and to observe such restriction.

Please send your feedback to [email protected] Visit us at www.krchoksey.com

KRChoksey Shares and Securities Pvt. Ltd. Registered Office: 1102, Stock Exchange Tower, Dalal Street, Fort, Mumbai – 400 001.

Phone: 91-22-6633 5000; Fax: 91-22-6633 8060 Corporate Office: Abhishek, 5th Floor, Link Road, Andheri (W), Mumbai – 400 053. Phone: 91-22-6696 5555; Fax: 91-22-6691 9576.

131 Thank You

132