Kotak Securities’ Rating System and Other Disclosures

October 16, 2014 India 14-Oct 1-day 1-mo 3-mo Sensex 26,349 (0.1) (1.7) 4.4 Nifty 7,864 (0.3) (2.2) 4.5 Contents Global/Regional indices Dow Jones 16,142 (1.1) (5.8) (5.8) Special Reports Nasdaq Composite 4,215 (0.3) (7.4) (4.8) Strategy FTSE 6,212 (2.8) (8.5) (8.4) Strategy: Some headwinds, some tailwinds Nikkei 14,725 (2.3) (7.5) (4.3) Hang Seng 22,945 (0.8) (4.9) (2.5) Strategy: FII activity into the EM region takes a breather in September KOSPI 1,913 (0.7) (6.4) (5.0) Daily Alerts Value traded – India Cash (NSE+BSE) 189 201 195 Results Derivatives (NSE) 2,274 1,647 1,574

Bajaj Auto: Operationally better results Deri. open interest 2,022 2,059 1,914 Bajaj Finserv: High growth at Bajaj Finance, other businesses stable

Mindtree: 2HFY15: A soft chapter in a strong story Forex/money market

Change, basis points Company alerts 14-Oct 1-day 1-mo 3-mo

UltraTech Cement: The global Indian Rs/US$ 61.5 -7 52 144 Tata Steel: Europe longs division sale may add Rs30 to fair value 10yr govt bond, % 8.6 4 (11) (23) Net investment (US$ mn) Apollo Tyres: Upgrading earnings; retain BUY 13-Oct MTD CYTD

Prestige Estates Projects: Operations update - another quarter of strong sales FIIs (89) (298) 13,516

MFs 79 371 1,845 Sector alerts Top movers

Telecom: Telecom: Spectrum chronicles: TRAI recommendations progressive; Change, % positive if accepted Best performers 14-Oct 1-day 1-mo 3-mo

AL IN Equity 44.6 (0.2) 13.6 36.0 Economy alerts CIPLA IN Equity 578.5 0.4 (6.6) 33.9

Economy: Disinflationary trends continue GNP IN Equity 734.8 1.6 1.1 31.9

LPC IN Equity 1330.5 0.2 (2.2) 25.0

HPCL IN Equity 497.7 (2.2) 6.1 22.6

Worst performers

JPA IN Equity 30.1 (0.5) (12.2) (55.3)

DLFU IN Equity 105.0 (28.6) (37.7) (53.4)

JSP IN Equity 157.0 (1.3) (28.1) (46.3)

UT IN Equity 18.1 (2.2) (20.8) (36.0)

IDBI IN Equity 61.6 0.3 (17.5) (35.0)

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

INDIA Strategy Portfolio OCTOBER 16, 2014 UPDATE BSE-30: 26,349 Some headwinds, some tailwinds. The different trajectory of GDP growth and inflation in the major economic zones provides both headwinds and tailwinds for India. On the whole, lower global commodity prices and ‘offsetting’ monetary policies in the major economies are positive for India. However, India would need to do much more on domestic reforms given high expectations from investors.

Various sorts of QE in a multi-speed world

Discussions on the monetary policies of the global central banks have largely focused on a QUICK NUMBERS potential tightening by the US Fed in the middle of 2015. However, with inflation being quite tame in the US (see Exhibit 1) and economic data still mixed (see Exhibit 2), this is far from  US$1/bbl = US$1.1 certain. In any case, US Fed tightening will coincide with stronger US economic growth, which is bn of CAD and a positive for India. Also, the inability of governments in the Eurozone and Japan to implement US$200 mn of fuel structural reforms and the specter of deflation suggest that ECB will probably implement subsidies for sovereign QE and BOJ will continue with QE for an extended period of time. Exhibit 3 shows the FY2016E quantum of QE being pursued by various central banks globally.  Balance sheets of Low commodity prices, in particular of crude oil, positive for India the three major Low global commodity prices due to slowing GDP growth and rising global supply are a positive central banks have for India. In particular, low crude oil prices benefit India in several ways—(1) potentially lower expanded US$4 tn inflation (see Exhibits 4-5), (2) lower fuel subsidies and gross fiscal deficit and (3) lower from CY2009 CAD/BOP (see Exhibit 6). Exhibit 7 shows our revised estimates for fuel subsidies split across various players for FY2015-17E and Exhibit 8 shows the sensitivity of fuel subsidies to various  BSE-30 Index is levels of crude oil prices for FY2016E. We do not rule out a moderate bounce-back in crude oil trading at 14.9X prices if Saudi Arabia cuts oil production. It has maintained production despite rising supplies FY2016E free-float from other OPEC members (see Exhibit 9). We have cut our crude price assumptions by ‘EPS’ US$5/bbl each for FY2015-17 and model US$102.5/bbl and US$97.5/bbl for FY2015 and FY2016.

Use lower crude oil prices to build some buffer

We would suggest that the Indian government continue with the current level of diesel prices despite current ‘over-recovery’ of `3.5/liter on diesel, which could reduce fuel subsidies further. India’s FY2015 fiscal position is looking quite grim (see Exhibit 10) with anemic growth in taxation revenues (see Exhibit 11). In fact, the government should raise excise taxes on diesel that it had cut earlier to manage overall fuel subsidies; Exhibit 12 shows the reduction in excise duty on diesel over a period of time.

Next level of reforms critical

Economic reforms over the next months would be critical to ward off pressures from increased global volatility. The government must look at innovative ways to reduce subsidies and address the banking system NPLs even as it continues with reforms to improve the investment climate, which will kick-start the investment cycle. The pace of reforms can be accelerated once the election cycle gets over in January 2015. Exhibit 13 lists certain reforms that the government may focus on over the next 12 months.

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

Valuations and Model Portfolio changes

We find the valuations of the Indian market reasonable (see Exhibits 14-17) but note India’s moderate outperformance over other emerging markets (see Exhibit 18) and its stark outperformance over developed markets (see Exhibit 19) through the year. It is apparent that investors still like India’s medium-term story. However, it is also clear that some investors will lose patience if India does not deliver on economic reforms over the next 3-4 months.

We make a few minor changes to our Model Portfolio (See Exhibit 20). We have (1) added TECHM (+200 bps from nil earlier), (2) reduced weight on Dr Reddy’s by 100 bps (nil position now) and (3) reduced 100 bps from TTMT (600 bps weight in the portfolio now).

Exhibit 1: US inflation has been tame for the past couple of years Trend in US inflation (CPI, core CPI and PCE) (yoy, %)

5 CPI inflation Core CPI inflation Core PCE inflation 4

Feb-12 Feb-14 Feb-13

Nov-12 Nov-11 Nov-13

Aug-11 Aug-13 Aug-14 Aug-12

May-12 May-13 May-14

Source: Bloomberg, Kotak Institutional Equities

Exhibit 2: Economic variables still giving mixed signals regarding US growth scenario Trend in key economic variables for US

Monthly indicators S e p-13 O ct-13 N o v-13 D e c-13 Ja n -14 Fe b -14 Ma r-14 Apr-14 Ma y-14 Jun -14 Jul-14 Aug -14 S e p-14 Average private earnings (yoy, %) 2.0 2.3 2.5 1.6 2.0 1.5 2.1 2.3 2.1 2.0 2.3 2.1 2.2 Conference Board consumer confidence (X) 80.2 72.4 72.0 77.5 79.4 78.3 83.9 81.7 82.2 86.4 90.3 93.4 86.0 Core PCE (yoy, %) 1.3 1.3 1.3 1.3 1.2 1.2 1.3 1.4 1.5 1.5 1.5 1.5 Housing starts (SAAR, '000) 863.0 936.0 1,105.0 1,034.0 897.0 928.0 950.0 1,063.0 984.0 909.0 1,117.0 956.0 Industrial production (yoy, %) 3.4 3.6 3.2 3.3 2.9 3.2 3.6 3.9 4.3 4.4 4.8 4.1 ISM manufacturing (X) 56.0 56.6 57.0 56.5 51.3 53.2 53.7 54.9 55.4 55.3 57.1 59.0 56.6 ISM non-manufacturing (X) 54.5 55.1 54.1 53.0 54.0 51.6 53.1 55.2 56.3 56.0 58.7 59.6 58.6 Non-farm payrolls ('000) 164.0 237.0 274.0 84.0 144.0 222.0 203.0 304.0 229.0 267.0 243.0 180.0 248.0 Participation rate (%) 63.2 62.8 63.0 62.8 63.0 63.0 63.2 62.8 62.8 62.8 62.9 62.8 62.7 Personal savings rate (% of disposable income) 5.2 4.7 4.3 4.1 4.9 5.0 4.8 5.2 5.4 5.4 5.6 5.4 Retail sales excl. automobiles (yoy, 3MMA, %) 3.3 2.6 2.2 2.3 2.0 1.5 1.3 2.0 2.9 3.3 3.2 3.3 S&P house price index (yoy, %) 13.3 13.6 13.8 13.4 13.2 12.9 12.4 10.8 9.3 8.0 6.7 Umemployment rate (%) 7.2 7.2 7.0 6.7 6.6 6.7 6.7 6.3 6.3 6.1 6.2 6.1 5.9

Quarterly indicators Ma r-13 Jun -13 S e p-13 D e c-13 Ma r-14 Jun -14 CAD/GDP (%) (2.7) (2.6) (2.5) (2.3) (2.3) (2.3) GFD/GDP (%) (5.5) (4.2) (4.0) (3.3) (2.9) (3.1) Real GDP (SAAR, qoq, %) 2.7 1.8 4.5 3.5 (2.1) 4.6

Source: Bloomberg, CEIC, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3 India Strategy

Exhibit 3: Central banks' balance sheets have expanded significantly over the past few years Balance sheet size of major central banks (July 2006=100)

650 Fed ECB BOJ BOE 550

450

350

250

150

2006 2007 2012 2013 2014 2009 2010 2011 2008

Source: Bloomberg, Kotak Institutional Equities

Exhibit 4: Average CPI inflation likely to trend down on high base in 2HCY13 Headline and core CPI inflation (%)

Headline CPI inflation Core CPI inflation 12

8 March 2015: 7.0

5 March 2015: 6.2

Jul-12 Jul-13 Jul-14

Jan-14 Jan-15 Jan-12 Jan-13

Sep-13 Sep-14 Sep-12

Nov-12 Nov-13 Nov-14

Mar-12 Mar-13 Mar-14 Mar-15

May-13 May-14 May-12

Source: CEIC, Kotak Institutional Equities estimates

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH Strategy India

Exhibit 5: Inflation likely to trend down in FY2015 WPI inflation (yoy change), 2008-15E (%)

WPI inflation 12

6 4.3 4 2.4 2

(2)

Jul-08 Jul-13

Jan-11

Jun-11

Feb-08 Feb-13 Oct-14 Oct-09

Sep-07 Apr-12 Sep-12

Dec-13 Dec-08

Nov-11

Mar-15 Mar-10

Aug-10 May-14 May-09

Source: CEIC, Kotak Institutional Equities estimates

Exhibit 6: CAD likely to be under control in FY2015E and FY2016E India's balance of payments, March fiscal year-ends, 2013-16E (US$ bn)

20 15 E 20 13 20 14 O il@9 7.5 O il@10 2.5 20 16 E Current account (8 8 .2) (32.4) (27.1) (32.3) (28 .1) GDP 1,859 1,878 2,113 2,113 2,369 CAD/GDP (%) (4.7) (1.7) (1.3) (1.5 ) (1.2) Trade balance (195.7) (147.6) (145.7) (151.0) (154.6) Trade balance/GDP (%) (10 .5 ) (7.9 ) (6 .9 ) (7.1) (6 .5 ) - Exports 307 319 327 330 345 - Imports 502 466 473 481 500 - oil imports 170 168 156 164 164 - non-oil imports 332 298 317 317 336 Invisibles (net) 107 115 119 119 127 - Services 65 73 79 79 85 - software 64 67 74 74 80 - non-software 1.4 6.0 5.0 5.0 5.0 - Transfers 64 65 67 67 69 - Income (net) (21.5) (23.0) (27.0) (27.0) (27.0) Capital account 8 9 .4 48 .8 6 2.0 6 2.0 46 .0 Percentage of GDP 4.8 2.6 2.9 2.9 1.9 Foreign investment 46.7 26.4 55.0 55.0 35.0 - FD I 19 .8 21.6 25 .0 25 .0 20 .0 - FP I 26 .9 4.8 30 .0 30 .0 15 .0 - E q uitie s 23.3 13.5 — — — - D e b t 4.3 (8 .5 ) — — — Banking capital 16.6 25.4 8.0 8.0 10.0 - NRI deposits 14.8 38.9 10.0 10.0 12.0 Short-term credit 21.7 (5.0) — — — ECBs 8.5 11.8 8.0 8.0 10.0 External assistance 1.0 1.0 1.0 1.0 1.0 Other capital account items (5.0) (10.8) (10.0) (10.0) (10.0) E&O 2.7 (0.9) — — — Overall balance 3.9 15 .6 34.9 29 .7 17.9 Me mo ite ms Average USD/INR 54.41 60.45 60.50 60.50 61.00 Average crude (US$/bbl) 10 8 .2 10 7.6 9 7.5 10 2.5 9 7.5

Source: RBI, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 5 India Strategy

Exhibit 7: We assume lower government compensation for fuel subsidies in FY2015-17 Share of under-recoveries for various participants, March fiscal year-ends, 2009-17E (Rs bn)

20 0 9 20 10 20 11 20 12 20 13 20 14 20 15 E 20 16 E 20 17E Macro-assumptions Dated Brent crude oil price (US$/bbl) 89 67 84 113 112 108 103 98 95 Exchange rate (Rs/US$) 46 47 46 48 54 60 61 61 61 Subsidy burden Petrol 52 52 22 49 11 — — — — Diesel 523 93 344 812 921 628 114 — — LPG 176 143 220 300 396 465 444 437 441 Kerosene 282 174 196 274 294 306 278 258 245 Subsidy burden 1,033 461 782 1,434 1,621 1,399 836 695 686 Gross under-recoveries 1,0 6 2 49 1 8 14 1,46 5 1,6 5 1 1,429 867 726 717 Subsidy sharing Payment by government (direct budgetary support) 29 30 32 31 31 31 31 31 31 Payment by government (oil bonds/cash) 713 26 0 410 8 35 1,0 0 0 70 8 30 2 333 35 6 Net under-recovery of oil companies 320 201 372 599 621 691 534 362 330 Receipt from upstream companies 329 144 30 3 550 600 6 70 5 14 35 1 319 Share of ONGC 282 116 249 445 494 564 436 304 276 Share of GAIL 18 13 21 32 27 19 12 — — Share of Oil India 29 15 33 74 79 87 66 47 43 Net under-recovery of OMCs (9 ) 56 69 49 21 21 20 11 11

Source: Company, Kotak Institutional Equities estimates

Exhibit 8: FY2016E fuel subsidies can be meaningfully lower versus our Rs700 bn estimate Sensitivity of subsidy burden to crude oil price and exchange rate, March fiscal year-end, 2016E (Rs bn)

Crude oil price (US$/bbl) 8 2.5 8 7.5 9 2.5 9 7.5 10 2.5 10 7.5 112.5 5 8 .0 481 535 588 642 695 748 802 5 9 .0 496 551 605 659 714 768 823 6 0 .0 512 567 622 677 733 788 843 6 1.0 527 583 639 695 752 808 864

6 2.0 542 599 656 713 771 828 885 (Rs/US $)

6 3.0 557 615 673 731 789 847 905 Exchange rate 6 4.0 572 631 690 749 808 867 926

Source: Kotak Institutional Equities estimates

Exhibit 9: Saudi Arabia has maintained production despite rising supplies from other OPEC members OPEC crude production and sustainable capacity (mn b/d)

Sustainable P ro d uctio n pro d uctio n S pa re Ja n -14 Fe b -14 Ma r-14 Apr-14 Ma y-14 Jun -14 Jul-14 Aug -14 S e p-14 ca pa city ca pa city Algeria 1.08 1.10 1.02 1.12 1.15 1.14 1.16 1.15 1.13 1.17 0.04 Angola 1.65 1.61 1.47 1.63 1.62 1.65 1.73 1.71 1.72 1.80 0.08 Ecuador 0.53 0.55 0.55 0.55 0.56 0.56 0.56 0.56 0.56 0.57 0.01 Iran 2.78 2.85 2.80 2.83 2.85 2.80 2.76 2.80 2.75 2.90 0.15 Iraq 3.09 3.60 3.20 3.32 3.42 3.26 3.15 3.11 3.31 3.40 0.09 Kuwait 2.78 2.80 2.76 2.81 2.80 2.78 2.80 2.85 2.87 2.85 NA Libya 0.50 0.36 0.24 0.22 0.22 0.24 0.42 0.53 0.78 0.85 0.07 Nigeria 1.92 1.94 1.94 1.92 1.90 1.91 1.85 1.84 1.85 2.00 0.15 Qatar 0.72 0.73 0.71 0.70 0.70 0.73 0.73 0.73 0.71 0.73 0.02 Saudi Arabia 9 .76 9 .8 5 9 .5 7 9 .6 6 9 .71 9 .78 10 .0 1 9 .6 8 9 .73 12.40 2.6 7 United Arab Emirates 2.72 2.70 2.78 2.69 2.79 2.83 2.83 2.82 2.78 2.90 0.12 Venezuela 2.46 2.42 2.46 2.46 2.50 2.48 2.48 2.48 2.48 2.60 0.12 T o ta l O P E C 29 .9 9 30 .5 1 29 .5 0 29 .9 1 30 .21 30 .13 30 .46 30 .24 30 .6 6 34.17 3.5 1

Source: IEA, Kotak Institutional Equities estimates

6 KOTAK INSTITUTIONAL EQUITIES RESEARCH Strategy India

Exhibit 10: Lower tax revenues pose risks to fiscal targets but may be offset by lower plan expenditure Major central government budgetary items, March fiscal year-ends, 2012-15E (Rs bn)

20 14P / 20 15 BE / 20 15 E / 20 12 20 13 20 14P 20 15 BE 20 15 E 20 13 20 14P 20 14P Re ce ipts 1. Revenue receipts (2d + 3) 7,5 14 8 ,776 10 ,15 3 11,8 9 8 11,416 16 17 12 2. Gross tax revenue (a + b ) 8,892 10,362 11,388 13,645 12,958 10 20 14 2.a. Direct taxes 4,974 5,624 6,426 7,396 7,396 14 15 15 2.a.1. Corporation tax 3,228 3,563 3,947 4,510 4,499 11 14 14 2.a.2. Income tax 1,645 1,965 2,378 2,843 2,853 21 20 20 2.b. Indirect taxes 3,917 4,738 4,962 6,249 5,562 5 26 12 2.b.1. Customs duty 1,493 1,653 1,721 2,018 1,842 4 17 7 2.b.2. Excise duty 1,449 1,758 1,695 2,071 1,864 (4) 22 10 2.b.3. Service tax 975 1,326 1,546 2,160 1,856 17 40 20 2.c Transfers to states, UTs and national funds 2,594 2,960 3,228 3,873 3,667 9 20 14 2.d Net tax revenue 6,298 7,403 8,160 9,773 9,291 10 20 14 3. Non-tax revenue 1,217 1,374 1,992 2,125 2,125 45 7 7 4. Non-debt capital receipts (a + b) 36 9 422 40 1 740 740 (5) 85 85 4.a Recovery of loans 189 163 125 105 105 (23) (16) (16) 4.b Other receipts (disinvestments) 181 259 276 634 634 6 130 130 5. Total receipts (1 + 4) 7,8 8 4 9 ,19 8 10 ,5 5 3 12,6 37 12,15 5 15 20 15 6. Non-plan expenditure 8 ,9 20 9 ,9 6 7 11,10 4 12,19 9 12,10 1 11 10 9 6.a. Interest payments 2,732 3,132 3,775 4,270 4,270 21 13 13 6.b. Subsidies 2,179 2,571 2,555 2,607 2,501 (1) 2 (2) 6.b.1. Food 728 850 920 1,150 1,150 8 25 25 6.b.2. Fertilizer 700 656 680 730 730 4 7 7 6.b.3. Oil 685 969 855 634 529 (12) (26) (38) 6.b.3. Other subsidies 66 96 101 92 92 5 (8) (8) 6.c. Others 4,009 4,265 4,774 5,322 5,330 12 11 12 7. Plan expenditure 4,124 4,136 4,5 31 5 ,75 0 5 ,437 10 27 20 8. Total expenditure (6 + 7) 13,0 44 14,10 4 15 ,6 35 17,9 49 17,5 38 11 15 12 D e ficit Primary deficit (PD) 2,428 1,774 1,306 1,042 1,113 (26) (20) (15) Gross fiscal deficit (GFD) 5,160 4,906 5,081 5,312 5,383 4 5 6 Gross borrowings 5,100 5,580 5,639 6,009 6,009 1 7 7 Net market borrowing (dated securities) 4,364 4,674 4,689 4,612 4,612 0 (2) (2) Debt buyback — — 500 500 500 Short-term borrowing (TBills) 1,161 534 227 346 346 Nominal GDP at market prices 9 0 ,0 9 7 10 1,133 113,5 5 1 128 ,76 7 127,8 5 8 12.3 13.4 12.6 P D /GD P (%) 2.7 1.8 1.2 0 .8 0 .9 GFD/GDP (%) 5 .7 4.9 4.5 4.1 4.2

Source: Ministry of Finance, Kotak Institutional Equities estimates

Exhibit 11: April-August tax revenues have grown at 5.1% Monthly tax receipts of the Indian government, March fiscal year-ends, 2014-15 (Rs bn)

Ch a n g e (%) YTD (Apr-Aug) Ch a n g e (%) Aug -14 Aug -13 Jul-14 yo y mo m 20 15 20 14 yo y Gross tax revenues 661 6 37 75 8 3.7 (12.9 ) 3,249 3,0 9 1 5 .1 Direct taxes 257 254 318 1.1 (19.0) 1,568 1,459 7.5 Corporation tax 111 117 121 (5.8) (8.5) 736 726 1.3 Income tax 136 129 185 5.4 (26.4) 785 697 12.6 Indirect taxes 403 383 441 5.4 (8.5) 1,681 1,631 3.0 Customs duty 160 138 152 15.5 4.8 698 699 (0.0) Excise duty 132 134 139 (1.6) (4.8) 455 472 (3.6) Service tax 112 111 150 1.0 (25.4) 528 461 14.5 Other taxes 10 8 12 34.7 (10.6) 47 35 33.3 Net tax revenues 38 6 38 6 478 0 .0 (19 .2) 1,8 5 5 1,8 37 1.0

Notes: (a) Net tax revenues is defined as gross tax revenues net of transfer to states.

Source: Ministry of Finance, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 7 India Strategy

Exhibit 12: Excise duty on diesel has declined over a period of time Historical excise duty on diesel, March fiscal year-ends, 2003-14 (Rs/liter)

6 Excise duty on diesel 5.1 4.9 5.0 5 4.7

3.9 3.8 4 3.6 3.4 3.4 2.8 2.9 3 2.7

0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Source: Government, Kotak Institutional Equities

Exhibit 13: We expect bigger reforms over the next 12-18 months Potential reforms and schedule

Action Schedule Remarks (A) Fiscal If GST has to be implemented by April 1, 2016, the final structure of GST has to be in place by 1 Final structure of GST 1QCY15 end of FY2015 for the parliament to pass the necessary legislations and states to ratify it Direct cash transfers for subsidies on food and fuels will reduce leakages in the current public 2 Direct benefit transfer (DBT) schemes 2QCY15 distribution system Start of monthly price increases for subsidized LPG or reduction in the number of subsidized 3 LPG price increase January, 2015 LPG cylinders This is outside the central government's domain; however, power tariff increases will reduce 4 Power tariff increases ASAP the subsidies of states and India's consolidated fiscal deficit This is important to meet the FY2015 GFD/GDP target; government needs to implement key 5 Divestment program 4QCY14 reforms in the energy space to divest stakes in Coal India and ONGC (B) Investment Auction of coal blocks de-allocated by the Supreme Court in September 2014; auction of other 1 Auction of coal blocks 2Q/3QCY15 coal blocks Finalize a path to break even economics for state-owned distribution companies; central 2 Power tariff rationalization 1Q/2QCY15 government, state governments and banks to come out with a plan Pricing formula for both oil (nominated blocks of government companies) and gas needs to be 3 Market pricing of energy (oil & gas) 4QCY14 finalized to incentivize domestic production Amend central Land Acquisition Act, 2013; one state government is implementing its own 4 Land reforms 2Q/3QCY15 version of Land Acquisition Act to ease land acquisition 5 Labor reforms 2Q/3QCY15 Amend complex labor laws; one state government has already done so 6 Manufacturing policy 1Q/2QCY15 Further policy details to back 'make-in-India' strategy Approvals to be awarded on 'deemed' basis; online application for forest and environment 7 Deemed approval system 2Q/3QCY15 approvals started in July 2014 (C) Banking sector PJ Nayak Committee recommends intermediate holding structure for government holding 1 Restructuring of PSU banks 2Q/3QCY15 (bank holding company) etc. RBI has already cut SLR by 100 bps and this should be headed down over the next five years 2 Reduction in SLR over a period of time Work-in-progress as GFD/GDP and public debt/GDP decline The government's 'Jan Dhan Yojna' was started in August 2014 with a target of financial 3 Financial inclusion Work-in-progress inclusion for all; progress on accounts and efficacy of accounts for payments etc. critical to monitor This is strictly not reforms but high extant NPLs and potential NPLs in the power, steel and 4 NPL situation 4QCY14 (ASAP) telecom sectors can derail India's investment cycle and economic recovery (D) Governance The government has focused on empowering bureaucracy and streamlining decision-making in 1 Reducing bureaucracy Work-in-progress the first few months of its tenure The government's did not contest the Supreme Court's decision to cancel coal blocks allocated 2 Corruption/black money Work-in-progress since 1993; this shows the government's commitment for more transparency New system for appointment of judges to the Supreme Court and High Courts; bill passed in 3 Judiciary reforms Work-in-progress the parliament Creation of new regulators, sector super- There is no regulator for coal and real estate; all regulators related to communication, energy 4 3QCY15 regulators and finance should come under one sector super-regulator

Source: Kotak Institutional Equities estimates

8 KOTAK INSTITUTIONAL EQUITIES RESEARCH Strategy India

Exhibit 14: We expect earnings of the BSE-30 Index to grow 13.5% in FY2015 and 17% in FY2016 Valuation summary of BSE-30 sectors (full-float basis), March fiscal year-ends, 2014-16E

Mca p. Ad j. mca p. EPS growth (%) P E R (X) EV/EBITDA (X) Price/BV (X) Div. yield (%) Ro E (%) (U S $ b n ) (U S $ b n ) 20 14 20 15 E 20 16 E 20 14 20 15 E 20 16 E 20 14 20 15 E 20 16 E 20 1420 15 E 20 16 E 20 14 20 15 E 20 14 20 15 E 20 16 E Automobiles 72.5 44.9 25.0 5.4 30.1 16.5 15.6 12.0 9.0 8.0 6.5 3.7 3.1 2.6 1.1 0.8 22.4 19.9 21.4 Banking 133.1 105.7 4.2 19.7 16.8 20.0 16.7 14.3 — — — 3.0 2.7 2.4 1.2 1.4 15.1 16.1 16.5 Consumers 71.4 41.0 14.1 12.9 15.4 35.9 31.8 27.6 26.4 22.7 19.3 14.3 12.9 11.5 1.7 2.1 39.8 40.7 41.8 Energy 111.3 43.0 4.2 12.5 16.0 12.9 11.5 9.9 7.6 6.4 5.4 1.5 1.4 1.3 1.8 2.2 11.7 12.0 12.7 Industrials 30.7 23.2 (30.1) (11.3) 40.4 23.6 26.6 18.9 17.5 16.5 12.8 2.6 2.5 2.2 1.1 1.0 11.2 9.3 11.7 Metals & Mining 59.8 18.5 (6.4) 25.3 7.4 13.9 11.1 10.4 7.4 6.3 5.7 1.8 1.7 1.5 5.6 2.9 13.2 15.1 14.8 Pharmaceuticals 42.8 21.8 31.8 11.8 14.2 28.7 25.6 22.5 22.1 17.5 14.6 7.0 5.6 4.6 0.4 0.8 24.3 21.9 20.6 Technology 145.8 63.8 28.2 14.4 14.5 23.7 20.7 18.1 17.1 14.9 12.6 6.7 5.8 4.8 1.3 2.1 28.1 27.8 26.8 Telecom 25.9 9.1 46.3 69.8 18.0 47.8 28.2 23.9 8.3 7.4 6.3 2.7 2.4 2.3 0.5 0.5 5.6 8.7 9.6 Utilities 22.9 8.4 2.1 (11.9) 18.4 12.2 13.9 11.7 9.0 9.3 7.8 1.4 1.3 1.2 3.6 2.2 11.7 9.5 10.4 BS E -30 716 379 8 .1 13.5 17.0 19 .2 16 .9 14.5 11.2 9 .7 8 .3 3.0 2.7 2.4 1.7 1.7 15 .6 15 .8 16 .4 BSE-30 ex-Energy 605 336 9 .4 13.8 17.3 21.1 18 .5 15 .8 12.5 11.0 9 .4 3.6 3.2 2.8 1.7 1.6 17.2 17.4 18 .0

Source: Kotak Institutional Equities estimates

Exhibit 15: The BSE-30 Index trades at 17.5X FY2015E 'EPS' and 14.9X FY2016E 'EPS' (free-float basis) Valuation summary of BSE-30 sectors (free-float basis), March fiscal year-ends, 2014-16E

Mca p. Ad j. mca p. Adjusted net profit (Rs bn) Adjusted P/E (X) (Rs b n ) (Rs b n ) 20 14 20 15 E 20 16 E 20 14 20 15 E 20 16 E Automobiles 4,449 2,758 176 184 237 15.6 15.0 11.6 Banking 8,174 6,488 316 371 433 20.5 17.5 15.0 Consumers 4,386 2,518 73 82 95 34.5 30.6 26.4 E n e rg y 6 ,8 31 2,6 40 20 4 225 25 4 12.9 11.7 10 .4 Industrials 1,888 1,422 55 50 73 26.0 28.2 19.6 Metals & Mining 3,669 1,135 85 113 114 13.4 10.1 9.9 Pharmaceuticals 2,626 1,341 47 53 61 28.3 25.5 22.1 Technology 8,955 3,918 173 197 226 22.6 19.9 17.4 Telecom 1,593 557 12 20 23 47.8 28.2 23.9 Utilities 1,404 518 37 34 43 14.2 15.3 12.0 BS E -30 43,9 74 23,29 6 1,178 1,328 1,5 5 9 19 .8 17.5 14.9 BSE-30 ex-Energy 37,142 20 ,6 5 6 9 73 1,10 3 1,30 5 21.2 18 .7 15 .8

Source: Kotak Institutional Equities estimates

Exhibit 16: We expect earnings of the Nifty-50 Index to grow 12.5% in FY2015 and 15.9% in FY2016 Valuation summary of Nifty-50 sectors (full-float basis), March fiscal year-ends, 2014-16E

Mca p. Ad j. mca p. EPS growth (%) P E R (X) EV/EBITDA (X) Price/BV (X) Div. yield (%) Ro E (%) (U S $ b n ) (U S $ b n ) 20 14 20 15 E 20 16 E 20 14 20 15 E 20 16 E 20 14 20 15 E 20 16 E 20 14 20 15 E 20 16 E 20 14 20 15 E 20 14 20 15 E 20 16 E Automobiles 75.8 44.9 25.0 5.4 30.1 17.1 16.2 12.5 9.3 8.3 6.8 3.8 3.2 2.7 1.1 0.8 22.4 19.9 21.4 Banking 156.1 117.7 1.2 20.3 16.7 18.3 15.2 13.0 — — — 2.7 2.4 2.1 1.2 1.4 14.7 15.9 16.2 Consumers 87.3 48.6 13.7 13.5 15.4 39.6 34.9 30.2 28.5 24.5 20.9 15.2 13.7 12.1 1.5 1.8 38.4 39.2 40.1 Cement 27.0 13.0 (28.2) 9.4 21.9 27.8 25.4 20.9 14.9 13.1 10.1 2.8 2.6 2.3 1.0 0.9 10.0 10.1 11.2 Energy 131.2 44.9 6.2 7.6 12.1 11.5 10.7 9.6 7.2 6.3 5.3 1.5 1.4 1.2 2.0 2.3 13.1 12.8 13.0 Industrials 30.8 22.7 (30.1) (9.6) 37.3 23.4 25.9 18.9 17.5 16.5 12.9 2.6 2.4 2.2 1.0 1.0 11.2 9.4 11.7 Media 4.7 2.7 23.9 20.1 20.5 32.5 27.0 22.4 23.5 20.7 17.7 6.1 5.4 4.8 1.0 1.3 18.7 20.0 21.3 Metals & Mining 76.8 21.0 (9.2) 23.4 6.3 13.5 11.0 10.3 7.6 6.4 5.9 1.9 1.7 1.5 5.1 3.0 13.7 15.4 14.9 Real Estate 4.7 1.2 30.9 (27.8) 41.4 28.5 39.5 27.9 19.4 18.1 15.4 1.0 1.0 0.9 1.3 1.3 3.4 2.5 3.4 Pharmaceuticals 53.6 26.7 33.0 12.1 15.4 29.7 26.5 22.9 22.0 17.7 14.8 7.3 5.9 4.8 0.4 0.7 24.6 22.2 21.0 Telecom 26.5 9.2 46.3 69.8 18.0 48.4 28.5 24.2 8.4 7.4 6.4 2.7 2.5 2.3 0.4 0.5 5.6 8.7 9.6 Technology 172.8 71.1 31.5 13.9 13.9 22.5 19.7 17.3 15.9 14.0 11.9 6.4 5.5 4.6 1.3 2.0 28.6 27.7 26.3 Utilities 34.3 12.2 3.5 (5.8) 24.7 13.0 13.8 11.1 9.9 9.4 7.7 1.6 1.4 1.3 3.1 2.2 12.0 10.4 12.0 NIFTY 882 436 6 .8 12.5 15 .9 18 .6 16 .5 14.2 11.4 10 .0 8 .5 2.9 2.6 2.3 1.7 1.7 15 .6 15 .7 16 .2 NIFTY ex-Energy 75 0 39 1 7.0 14.0 17.0 20 .8 18 .2 15 .6 13.0 11.4 9 .7 3.4 3.1 2.7 1.6 1.6 16 .6 16 .9 17.4

Source: Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 9 India Strategy

Exhibit 17: The Nifty-50 Index trades at 17.7X FY2015E 'EPS' and 15.1X FY2016E 'EPS' (free-float basis) Valuation summary of Nifty-50 sectors (free-float basis), March fiscal year-ends, 2014-16E

Mca p. Ad j. mca p. Adjusted net profit (Rs bn) Adjusted P/E (X) (Rs b n ) (Rs b n ) 20 14 20 15 E 20 16 E 20 14 20 15 E 20 16 E Automobiles 4,615 2,732 167 174 224 16.3 15.7 12.2 Banking 9,507 7,170 367 431 503 19.5 16.6 14.3 Cement 1,645 793 31 33 40 25.8 23.9 19.7 Consumers 5,318 2,957 78 88 102 38.1 33.6 29.0 Energy 7,989 2,735 235 251 275 11.6 10.9 9.9 Industrials 1,875 1,385 53 49 70 26.3 28.2 19.7 Media 288 164 5 6 7 32.5 27.0 22.4 Metals & Mining 4,678 1,278 97 128 129 13.2 10.0 9.9 Pharmaceuticals 3,262 1,628 55 61 71 29.8 26.7 22.9 Real Estate 284 71 3 2 3 28.5 39.5 27.9 Technology 10,522 4,332 188 211 242 23.1 20.5 17.9 Telecom 1,612 558 12 20 23 48.4 28.5 24.2 Utilities 2,087 744 50 50 66 14.9 14.9 11.2 N ifty-5 0 5 3,6 8 3 26 ,5 48 1,339 1,5 0 3 1,75 6 19 .8 17.7 15 .1 Nifty-50 (ex-enegy) 45 ,6 9 4 23,8 13 1,10 4 1,25 3 1,48 0 21.6 19 .0 16 .1

Source: Kotak Institutional Equities estimates

10 KOTAK INSTITUTIONAL EQUITIES RESEARCH Strategy India

Exhibit 18: Indian markets have outperformed regional markets in the past few months Performance of BSE-30 versus other regional indices (adjusted for currency changes)

Russia Russia % Change 1 month % Change 3 months Korea Taiwan Mexico Korea Indonesia Malaysia Hong Kong Indonesia Taiwan Mexico Singapore Singapore Philippines Brazil Malaysia Philippines India Hong Kong Thailand Thailand Brazil India Shanghai Shanghai (12) (10) (8) (6) (4) (2) 0 2 4 (25) (20) (15) (10) (5) 0 5 10 15 20

Russia Russia % Change YTD Korea % Change 6 months Korea Indonesia Malaysia Malaysia Mexico Singapore Hong Kong Taiwan Taiwan Hong Kong Singapore Mexico Shanghai Philippines Brazil Brazil Indonesia Thailand Philippines Shanghai Thailand India India (15) (10) (5) 0 5 10 15 20 (30) (20) (10) 0 10 20 30

Source: Bloomberg, Kotak Institutional Equities

Exhibit 19: Indian markets have outperformed global markets in the past few months Performance of BSE-30 versus other global indices (adjusted for currency changes)

DAX DAX % Change 3 months CAC 40 CAC 40 S&P/ASX 200 FTSE 100 FTSE 100 S&P/ASX 200 KOSPI TAIWAN HANG SENG KOSPI NIKKEI 225 NIKKEI 225 TAIWAN Singapore S&P 500 S&P 500 Singapore Dow Jones Dow Jones IBOV % Change 1 month BSE 30 HANG SENG IBOV BSE 30 (14) (12) (10) (8) (6) (4) (2) 0 (20) (15) (10) (5) 0 5

CAC 40 % Change 6 months DAX % Change YTD DAX CAC 40 S&P/ASX 200 NIKKEI 225 FTSE 100 FTSE 100 KOSPI KOSPI Singapore S&P/ASX 200 TAIWAN Dow Jones HANG SENG HANG SENG Dow Jones TAIWAN NIKKEI 225 Singapore S&P 500 S&P 500 IBOV IBOV BSE 30 BSE 30 (20) (15) (10) (5) 0 5 10 15 20 (20) (15) (10) (5) 0 5 10 15 20 25 30

Source: Bloomberg, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 11 India Strategy

Exhibit 20: Quality stocks comprise our Model Portfolio KIE Model Portfolio

P rice (Rs ) KIE we ig h t P rice (Rs ) KIE we ig h t Co mpa n y 14-O ct-14 Ra tin g (%) 14-O ct-14 Ra tin g (%) Automobiles E n e rg y Apollo Tyres 216 BUY 2.0 GAIL (India) 447 BUY 3.0 Hero Motocorp 2,852 ADD 3.0 Indian Oil Corporation 367 ADD 2.0 Maruti Suzuki 2,962 BUY 4.0 Oil India 583 BUY 2.0 Tata Motors 488 BUY 6.0 Reliance Industries 961 ADD 4.0 Automobiles 15 .0 E n e rg y 11.0 Pvt. Banking/Financing Industrials/Construction Axis Bank 397 ADD 3.0 Larsen & Toubro 1,440 ADD 2.0 HDFC 1,004 ADD 6.0 Industrials/Construction 2.0 HDFC Bank 868 REDUCE 9.0 Pharmaceuticals Federal Bank 139 BUY 2.0 Cipla 579 BUY 2.0 ICICI Bank 1,478 BUY 9.0 Lupin 1,330 BUY 3.0 ING Vysya Bank 620 BUY 2.0 Pharmaceuticals 5 .0 LIC Housing Finance 334 BUY 2.0 T e ch n o lo g y Pvt. Banking/Financing 33.0 Infosys 3,918 ADD 8.0 Consumer products TCS 2,699 ADD 4.0 Britannia Industries 1,344 BUY 2.0 Tech Mahindra 2,372 ADD 2.0 Colgate-Palmolive (India) 1,701 ADD 2.0 Wipro 580 ADD 4.0 Dabur India 210 ADD 2.0 T e ch n o lo g y 18 .0 ITC 347 ADD 4.0 T e le co m Marico 300 BUY 2.0 Idea 154 BUY 2.0 United Spirits 2,441 BUY 2.0 T e le co m 2.0 Co n s ume rs 14.0 BS E -30 10 0 .0

Source: Kotak Institutional Equities estimates

12 KOTAK INSTITUTIONAL EQUITIES RESEARCH

INDIA Strategy Foreign fund-flow tracker OCTOBER 16, 2014 UPDATE BSE-30: 26,349

FII activity into the EM region takes a breather in September. KIE’s foreign fund- flow tracker gives us a comprehensive view of market flow activity by listed funds into India and its emerging market peers. These market participants are further classified based on their investment styles (passive ETFs or active non-ETFs) in an attempt to understand the intent and sentiments governing the flows.

QUICK NUMBERS

 Russia has seen total Country flows—EM region loses favor as total estimated allocations drop across the region estimated asset FII investments slowed down across the emerging markets with Taiwan, South Korea and allocations drop Indonesia witnessing large outflows in September. Interestingly, listed funds continued to 12% in September deploy capital in some of these regions, indicating selling from other participants. FIIs continued  Indian allocations by to invest into India, although at a slower pace. India-focused listed funds remained positive on the back of Asia ex-Japan funds. EM-focused activity remained lackluster even as India- Asia ex-Japan funds dedicated ETFs attracted capital. Estimated asset allocations in the EM region were down ~6% reach 12.9% in during the period with Russia recording an asset allocation drop of 12%. August

Country allocations—Asia ex-Japan fund exposure to India reaches 12.9% in August  EM activity remains lackluster during Asia ex-Japan funds continued to prefer India within the region in CYTD14. Allocations have the month increased by 0.9% since December 2013 and have reached record levels in August. On the GEM front, Brazil and China have been the biggest gainers over the past three months. Russia and Korea have seen reduced allocations during the same period. Indian allocations have stabilized at 10.6% (up 1.1% in CYTD14).

Fund flows—Asia ex-Japan funds overshadow EM peers last month

Funds benchmarked to the MSCI EM Index recorded outflows predominantly on the back of passive redemptions. In contrast, active funds in the Asia ex-Japan region continued to deploy capital in the region. Within the Indian landscape, ETFs benchmarked to MSCI India saw inflows worth US$188 mn even as active fund flows remained weak.

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

ADD Bajaj Auto (BJAUT) Automobiles OCTOBER 16, 2014 RESULT Coverage view: Attractive

Operationally better results. Bajaj Auto reported adjusted profit after tax of `8,528 Price (`): 2,412 mn (+2% yoy), which was in line with expectations. Net revenue of `59,631 mn (+15% Target price (`): 2,550 yoy) was 2% better than expectations led by higher average selling prices. Export BSE-30: 26,349 revenues increased by 30% yoy while domestic revenues rose by 5% yoy in 2QFY15. We maintain our ADD rating on the stock as we expect strong growth in export volumes to continue. Our target price for the stock is `2,550.

Company data and valuation summary Bajaj Auto Stock data Forecasts/Valuations 2014 2015E 2016E 52-week range (Rs) (high,low) 2,457-1,793 EPS (Rs) 112.1 120.8 139.9

Market Cap. (Rs bn) 698.0 EPS growth (%) 6.6 7.8 15.8

Shareholding pattern (%) P/E (X) 21.5 20.0 17.2 Promoters 50.0 Sales (Rs bn) 205.1 237.1 268.7 FIIs 18.6 Net profits (Rs bn) 32.4 35.0 40.5 MFs 0.7 EBITDA (Rs bn) 44.7 45.1 51.5 Price performance (%) 1M 3M 12M EV/EBITDA (X) 15.5 15.5 13.5 Absolute 2.7 13.4 12.8 ROE (%) 37.0 33.2 32.3 Rel. to BSE-30 5.5 7.6 (11.8) Div. Yield (%) 2.1 2.0 2.3

Strong export growth supports revenue growth

 Net revenues grew by 15% yoy led by 29% yoy growth in export revenues and 5% yoy growth in domestic revenues. Export average selling prices were flat yoy while domestic average selling prices rose by 10% yoy driven by higher share of three-wheelers and premium motorcycle in the product mix.

 Gross margins declined by 190 bps yoy despite improvement in product mix led by decline in contribution margin in the Discover portfolio, lower contribution margins on three-wheelers and some price-cuts effected in Nigeria to improve export motorcycle volumes. The company has sacrificed profitability to improve volumes in exports and in the Discover portfolio.

 Other expenses rose sharply on a yoy basis due to MTM losses on forex hedges, which were likely ~`1,200 mn in 2QFY15 versus ~`721 mn in 2QFY14. EBITDA margin (including forex losses) in 2QFY15 was 18.9% versus 21.9% in 2QFY14. The company reported a one-time exceptional charge of `3,403 mn due to the liability on the payment of NCCD to the government at the Pantnagar plant.

 The company has done extremely well in the export market but has lost significant market share in the domestic motorcycle segment. The company sold 28,000 units of Discover 150 in September 2014 and is hopeful of recovering lost market share through this brand, which we will monitor closely.

 Three-wheeler volumes continue to do well in both the export and domestic markets. Export volumes have been boosted by resumption of sales to Egypt and domestic three-wheeler

volumes have seen a strong growth due to new permits being issued by the Maharashtra government. The company’s market share in the permit-driven three-wheeler market stood at 88% and market share in the diesel three-wheeler market was 32%. The company has improved its market share in the diesel three-wheeler market by 7% during April - September 2014.

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

Exhibit 1: Bajaj Auto 2QFY15 interim results, March fiscal year-ends (Rs mn)

(% chg.) 2Q FY15 2Q FY15 E 2Q FY14 1Q FY15 2QFY15E 2QFY14 1QFY15 FY20 15 E Volumes (units) 1,0 5 5 ,5 8 2 1,0 5 5 ,5 8 2 9 6 1,330 9 8 8 ,430 9.8 6.8 4,25 4,430 Net realisations 55,200 54,265 52,651 51,935 1.7 4.8 6.3 52,290 N e t s a le s 5 8 ,26 9 5 7,28 1 5 0 ,6 15 5 1,334 1.7 15.1 13.5 222,465 Operating income 1,362 1,240 1,134 1,190 9.9 20.1 14.5 8,521 Net sales (including op income) 5 9 ,6 31 5 8 ,5 21 5 1,749 5 2,5 24 1.9 15.2 13.5 230 ,9 8 6 Inc/dec in stock 182 177 (723) 469 Raw materials (41,282) (40,409) (34,863) (36,079) 1.7 18.5 11.7 (152,663) Staff costs (2,102) (2,200) (1,834) (2,146) (4.4) 14.6 (2.0) (8,909) Other expenses (5,160) (4,974) (3,910) (4,325) 3.7 32.0 19.3 (26,737) Total expenses (48,363) (47,583) (40,430) (43,273) 1.6 19.6 11.8 (187,841) EBITDA 11,26 8 10 ,9 38 11,319 9 ,25 1 3.0 (0.5) 21.8 43,144 Other income 1,136 2,000 1,242 2,193 (43.2) (8.5) (48.2) 6,964 Interest expense (1) (1) (0) (1) — Depreciation expense (686) (700) (443) (692) (2.0) 54.9 (0.8) (2,800) Profit before tax before exceptional 11,717 12,237 12,118 10,751 (4.2) (3.3) 9.0 47,308 Extraordinary expense (3,403) — — — — Profit before tax 8 ,314 12,237 12,118 10 ,75 1 (32.1) (31.4) (22.7) 47,30 8 Tax expense (2,405) (3,671) (3,746) (3,351) (34.5) (35.8) (28.2) (13,719) Profit after tax 5,909 8,566 8,372 7,400 (31.0) (29.4) (20.1) 33,589 Ad j P AT 8 ,5 28 8 ,5 6 6 8 ,372 7,40 0 (0.4) 1.9 15.2 33,5 8 9 Raw material cost as % of net sales 68.9 69.1 67.0 70.1 65.9 Staff cost as % of net sales 3.5 3.8 3.5 4.1 3.9 Other expenses as % of net sales 8.7 8.5 7.6 8.2 11.6 EBITDA margin (%) 18.9 18.7 21.9 17.6 18.7 No of shares 289 289 289 289 289 EPS 29.5 29.6 28.9 25.6 116.1 Tax rate (%) 20.5 30.0 30.9 31.2 29.0 Volume breakdown (units) Economy 120,014 130,000 103,460 153,336 (7.7) 16.0 (21.7) 488,367 Executive 155,000 150,000 212,018 161,170 3.3 (26.9) (3.8) 942,567 Premium 186,637 181,651 190,994 176,335 2.7 (2.3) 5.8 718,976 Domestic motorcycle 46 1,6 5 1 46 1,6 5 1 5 0 6 ,472 49 0 ,8 41 — (8.8) (5.9) 2,149 ,9 10 Export motorcycle 435,671 435,671 342,818 384,017 — 27.1 13.5 1,587,808 Total motorcycle 8 9 7,322 8 9 7,322 8 49 ,29 0 8 74,8 5 8 — 5.7 2.6 3,737,718 Domestic 3 wheelers 74,838 74,838 53,826 55,622 — 39.0 34.5 242,913 Export 3 wh 81,591 81,591 58,212 57,950 — 40.2 40.8 273,800 3 w h e e le rs 15 6 ,429 15 6 ,429 112,0 38 113,5 72 — 39.6 37.7 5 16 ,713 Total volumes 1,0 5 3,75 1 1,0 5 3,75 1 9 6 1,328 9 8 8 ,430 — 9.6 6.6 4,25 4,430 Volume mix (%) Economy 11.4 12.3 10.8 15.5 11.5 Executive 14.7 14.2 22.1 16.3 22.2 Premium 17.7 17.2 19.9 17.8 16.9 Domestic motorcycle 43.8 43.8 52.7 49.7 50.5 Export motorcycle 41.3 41.3 35.7 38.9 37.3 Total motorcycle 8 5 .2 8 5 .2 8 8 .3 8 8 .5 8 7.9 Domestic 3 wheelers 7.1 7.1 5.6 5.6 5.7 Export 3 wh 7.7 7.7 6.1 5.9 6.4 3 w h e e le rs 14.8 14.8 11.7 11.5 12.1 Total volumes 10 0 .0 10 0 .0 10 0 .0 10 0 .0 10 0 .0

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 15 Automobiles Bajaj Auto

Exhibit 2: Bajaj Auto sales volumes, March fiscal year-ends, 2011-17E (units)

20 11 20 12 20 13 20 14 20 15 E 20 16 E 20 17E Sales volume (units) Motorcycles 3,38 7,0 43 3,8 34,40 5 3,75 7,10 5 3,422,40 3 3,737,718 4,126 ,15 7 4,5 6 0 ,110 Domestic 2,414,606 2,566,757 2,463,874 2,099,230 2,149,910 2,347,813 2,568,364 Platina 383,735 535,648 484,600 465,111 488,367 503,018 518,108 Discover 1,234,788 1,315,400 1,311,843 992,176 942,567 1,017,973 1,099,410 Pulsar 796,083 715,709 667,431 641,943 718,976 826,823 950,846 Exports 972,437 1,267,648 1,293,231 1,323,173 1,587,808 1,778,345 1,991,746 Total two-wheelers 3,38 7,0 43 3,8 34,40 5 3,75 7,10 5 3,422,40 3 3,737,718 4,126 ,15 7 4,5 6 0 ,110 RE 60 5,000 20,000 22,000 Domestic three-wheelers 20 5 ,6 27 20 2,9 79 226 ,131 18 6 ,9 12 242,9 13 25 5 ,0 5 8 26 7,8 11 Passenger three-wheelers 201,270 195,141 223,287 186,856 242,913 255,058 267,811 Goods three-wheelers 4,357 7,838 2,844 56 — — — Exports 231,281 312,176 253,926 260,762 273,800 342,250 376,475 Total three-wheelers 436 ,9 0 8 5 15 ,15 5 48 0 ,0 5 7 447,6 74 5 16 ,713 5 9 7,30 9 6 44,28 6 Total vehicles 3,8 23,9 5 1 4,349 ,5 6 0 4,237,16 2 3,8 70 ,0 77 4,25 4,430 4,723,46 6 5 ,20 4,39 7 Growth (yoy %) Motorcycles 35 .1 13.2 (2.0 ) (8 .9 ) 9 .2 10 .4 10 .5 Domestic 35.5 6.3 (4.0) (14.8) 2.4 9.2 9.4 Platina (10.1) 39.6 (9.5) (4.0) 5.0 3.0 3.0 Discover 55.3 6.5 (0.3) (24.4) (5.0) 8.0 8.0 Pulsar 42.2 (10.1) (6.7) (3.8) 12.0 15.0 15.0 Exports 34.1 30.4 2.0 2.3 20.0 12.0 12.0 Total two-wheelers 34.9 13.2 (2.0 ) (8 .9 ) 9 .2 10 .4 10 .5 RE 60 300.0 10.0 Domestic three-wheelers 16 .8 (1.3) 11.4 (17.3) 30 .0 5 .0 5 .0 Passenger three-wheelers 22.4 (3.0) 14.4 (16.3) 30.0 5.0 5.0 Goods three-wheelers (62.2) 79.9 (63.7) (98.0) — — — Exports 40.2 35.0 (18.7) 2.7 5.0 25.0 10.0 Total three-wheelers 28 .1 17.9 (6 .8 ) (6 .7) 15 .4 15 .6 7.9 Total vehicles 34.0 13.7 (2.6 ) (8 .7) 9 .9 11.0 10 .2

Source: Company, Kotak Institutional Equities estimates

16 KOTAK INSTITUTIONAL EQUITIES RESEARCH Bajaj Auto Automobiles

Exhibit 3: Bajaj Auto, profit model and balance sheet, March fiscal year-ends, 2011-17E (Rs mn)

20 11 20 12 20 13 20 14 20 15 E 20 16 E 20 17E Profit model (Rs mn) Net sales 158,968 188,803 194,890 197,176 222,465 251,967 280,487 EBITDA 34,138 40 ,28 4 41,0 6 4 44,710 43,144 5 0 ,0 8 8 5 5 ,10 3 Other income 3,339 2,997 3,244 3,412 6,964 8,415 10,440 Interest (17) (222) (5) (5) — — — Depreciation (1,228) (1,456) (1,640) (1,796) (2,800) (2,906) (3,016) Profit before tax 36 ,232 41,6 0 2 42,6 6 2 46 ,321 47,30 8 5 5 ,5 9 7 6 2,5 27 Extra-ordinary items 7,246 (1,340) — — — — — Taxes (10,080) (10,221) (12,227) (13,887) (13,719) (16,123) (18,133) N e t pro fit 33,39 7 30 ,0 41 30 ,436 32,433 33,5 8 9 39 ,474 44,39 4 Adjusted net profit 26 ,15 2 30 ,0 41 30 ,436 32,433 33,5 8 9 39 ,474 44,39 4 Adjusted earnings per share (Rs) 9 0 .4 10 3.8 10 5 .2 112.1 116 .1 136 .4 15 3.4 Balance sheet (Rs mn) Equity 49,102 60,411 79,020 96,080 113,950 134,951 158,569 Deferred tax liability 297 484 1,151 1,432 1,432 1,432 1,432 Total borrowings 4,855 2,546 2,105 1,466 1,466 1,466 1,466 Current liabilities 38,222 47,370 42,511 48,498 42,863 47,706 52,141 Total liabilities 9 2,476 110 ,8 11 124,78 6 147,476 15 9 ,711 18 5 ,5 5 5 213,6 0 8 Net fixed assets 15,483 14,914 20,277 20,386 21,586 22,680 22,663 Investments 47,219 48,828 64,305 85,496 97,742 117,742 142,742 Cash 2,288 16,538 5,589 4,955 669 1,836 1,315 Other current assets 27,443 30,211 33,913 35,524 38,599 42,182 45,772 Miscellaneous expenditure 43 320 703 1,115 1,115 1,115 1,115 Total assets 9 2,476 110 ,8 11 124,78 6 147,476 15 9 ,711 18 5 ,5 5 5 213,6 0 8 Free cash flow (Rs mn) Operating cash flow excl. working capital 24,352 28,802 26,557 31,419 27,868 32,724 36,581 Working capital changes (8,215) 797 (5,213) 4,039 (8,710) 1,260 844 Capital expenditure (2,006) (1,090) (5,082) (2,201) (4,000) (4,000) (3,000) Free cash flow 14,131 28 ,5 0 9 16 ,26 2 33,25 7 15 ,15 8 29 ,9 8 4 34,425 Ra tio s EBITDA margin (%) 20.5 20.3 20.1 21.8 18.7 19.1 18.9 PAT margin (%) 16.5 15.9 15.6 16.4 15.1 15.7 15.8 Book Value (Rs/share) 169.7 208.7 273.0 332.0 393.7 466.3 547.9 RoAE (%) 84.9 54.5 43.2 36.5 31.6 31.4 30.0 Ro ACE (%) 6 3.6 47.5 38 .6 33.2 26 .5 26 .3 24.7

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 17

BUY Bajaj Finserv (BJFIN) Banks/Financial Institutions OCTOBER 16, 2014 RESULT Coverage view: Attractive

High growth at Bajaj Finance, other businesses stable. Bajaj Finserv’s adjusted Price (`): 1,105 quarterly profits (`4.1 bn) were up 9% yoy, largely driven by Bajaj Finance and Bajaj Target price (`): 1,260 General Insurance. Strong investment income boosted Bajaj General’s earnings; Bajaj BSE-30: 26,349 Life continues to report weak APE growth. Bajaj Finance reported strong earnings as well as raised its loan growth guidance, even as it continues to battle NIM compression. We raise target price to `1,260 (from `1,175); retain BUY.

Company data and valuation summary Bajaj Finserv Stock data Forecasts/Valuations 2014 2015E 2016E 52-week range (Rs) (high,low) 1,165-616 EPS (Rs) 96.4 102.2 112.6

Market Cap. (Rs bn) 175.8 EPS growth (%) (6.6) 6.1 10.2 QUICK NUMBERS Shareholding pattern (%) P/E (X) 11.5 10.8 9.8 Promoters 58.9 NII (Rs bn) 25.7 31.9 38.1  Bajaj Finserv FIIs 10.0 Net profits (Rs bn) 21.9 23.5 26.1 MFs 2.2 BVPS 585.2 621.6 740.0 adjusted PAT up 9% Price performance (%) 1M 3M 12M P/B (X) 1.9 1.8 1.5 yoy Absolute 2.4 19.1 72.2 ROE (%) 17.9 16.9 16.5 Rel. to BSE-30 5.1 13.0 34.7 Div. Yield (%) 1.2 1.2 1.2  Bajaj Finance PAT Retain BUY with target price of `1,260 up 18% yoy; loans grew 41% yoy We retain BUY rating on Bajaj Finserv with an SOTP-based target price of `1,260 (from `1,175). The increase in target price is led by higher value of Bajaj Finance. The NBFC business will trade  Maintain BUY with at 2.3X PBR FY2016E at our fair value estimate (`127 bn); we expect Bajaj Finance to deliver TP of `1,260 (`1,175 23% EPS CAGR and 20% RoE during FY2014-17E. We continue to value Bajaj General earlier) Insurance at `68 bn, i.e. 2.5X PBR FY2016E for 22-24% RoE and Bajaj Life at `118 bn (EV + 14X NBV FY2016E). We consider 74% economic value of life and general insurance in our SOTP. Investment income drives general insurance business

Bajaj General Insurance reported 8% yoy growth in new premium to `9.5 bn. The profits from the underlying business were almost stable (`230 mn as compared to `220 mn in 2QFY14).

Combined ratio was stable at 96% yoy and qoq. Investment income increased to `1.7 bn, up 18% yoy (likely due to a higher investment base); investment assets had increased to `64 bn in 1QFY15 from 50 bn in 1QFY14; we await the investment figures for the recent quarter. Higher ` investment income has driven 28% yoy growth in PAT to `1.5 bn. The company reported 28% RoE in FY2014; we forecast 22-24% medium-term RoE and 20% growth in earnings. Life insurance – business momentum remains weak

Bajaj Life Insurance’s reported PAT of `2.43 bn in 2QFY15 was down 4% yoy. New business premium continued to decline, down 7% yoy. Growth in renewal business was 2% yoy as compared to yoy decline in the past few quarters. Consequently, the conservation ratio improved to 78% from 69% in 1QFY15 and 64% in 2QFY14. The ability of the company to sustain this ratio remains crucial. Buoyant capital markets have failed to lift growth at Bajaj Life, likely due to high concentration of traditional business (91% new business premium in FY2014).

Bajaj Finance – retaining focus on high growth, conscious efforts to protect NIM

Bajaj Finance delivered 41% yoy loan growth and 18% yoy PAT growth, largely due to compression in NIM and higher credit costs. The management has guided for strong business momentum (>30% loan growth) over the next few quarters even as earnings growth will be lower (21% yoy in FY2015E) due to NIM compression. The management has taken cognizance of risks to NIM and will continue to renovate its product offerings.

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL. Bajaj Finserv Banks/Financial Institutions

Exhibit 1: Bajaj Finserv - consolidated earnings Profits of various group companies, 2QFY14-2QFY15 (` mn)

2Q FY14 3Q FY14 4Q FY14 1Q FY15 2Q FY15 Yo Y (%) Standalone 563 54 107 80 600 7 Bajaj Life 2,520 2,980 1,790 2,860 2,430 (4) Policyholders surplus 1,450 1,830 1,300 1,710 1,400 (3) Shareholders surplus 1,070 1,150 490 1,150 1,030 (4) Bajaj General Insurance 1,130 950 1,010 1,300 1,450 28 Bajaj Finance 1,670 1,942 1,825 2,114 1,970 18 Consolidated PAT 2,765 2,811 7,074 3,190 3,159 14 Adj cons PAT (1) 3,788 4,107 7,981 4,392 4,136 9

Notes: (a) Please refer to Exhibits 11-12 for consolidated financials and key ratios for Bajaj Finserv from. FY2012 to FY2017E.

Source: Company, Kotak Institutional Equities

Exhibit 2: Bajaj General Insurance - quarterly trends 2QFY14-2QFY15 (` mn)

2Q FY14 3Q FY14 4Q FY14 1Q FY15 2Q FY15 Yo Y (%) Gross written premium 11,430 10,730 12,660 11,770 14,750 29 Net earned premium 8,810 8,990 8,930 9,210 9,530 8 Underwriting profit(loss) 560 300 590 240 230 (59) excl motor pool losses Motor pool losses (340) (420) (360) NA NA Underwriting profit(loss) 220 (120) 230 240 230 5 after motor pool losses Interest and capital gains 1,440 1,490 1,560 1,580 1,700 18 PBT 1,660 1,370 1,440 1,820 1,930 16 PAT 1,130 950 1,010 1,300 1,450 28 Combined ratio (%) 96 101 98 97 96

Source: Company, Kotak Institutional Equities

Exhibit 3: Bajaj Allianz Life Insurance - quarterly trends 2QFY14-2QFY15 (` mn)

2Q FY14 3Q FY14 4Q FY14 1Q FY15 2Q FY15 Yo Y(%) Gross business premium 14,340 13,850 21,400 7,960 14,010 (2) New business premium 6,590 6,780 8,170 3,940 6,100 (7) Non-single 2,443 3,200 2,811 NA NA Single/ group 4,147 3,580 5,359 NA NA Renewal premium 7,750 7,070 13,230 4,020 7,910 2

Conservation (%) 64 62 71 69 78

AUMs (Rs bn) 369 383 388 406 409 11

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 19 Banks/Financial Institutions Bajaj Finserv

Exhibit 4: We value Bajaj Finserv at `1,260/share Sum-of-the-parts-based valuation of Bajaj Finserv, March fiscal year-end, 2016E (`/share)

Va lue S h a re pe r in Va lue S h a re s h a re SOTP (Rs mn ) (%) (Rs ) (%) Co mme n ts Bajaj Allianz Life Insurance 118,760 74 496 40 NBAP margin of 11%; EV+14X NBV FY2016E Bajaj Allianz General 68,302 74 285 23 2.5X PBR FY2016E for 22-24% medium-term RoE Bajaj Finance 127,140 63 452 36 2.3X PBR FY2016E for 20% RoE Net cash 3,500 100 22 2 1X cash T o ta l 1,25 6 10 0

Source: Kotak Institutional Equities estimates

Bajaj Finance – retaining focus on high growth, conscious efforts to protect NIM

Bajaj Finance delivered 18% yoy growth in PAT to `1.97 bn driven by ~40% yoy loan growth. NIM (calculated) declined 130 bps yoy to 8.5% led by pressure on lending yields (as a result of high competition) and shift in loan mix towards higher share of low-yielding SME loans. Asset quality trend was marginally weak with gross NPLs increasing ~30 bps to 1.4% as an infrastructure account slipped into NPL during the quarter.

While loan growth will be high (about 30% or more) over the next few quarters, earnings growth will be lower (21% yoy in FY2015E) due to NIM compression. We find two reasons for lower NIM - (1) increase in share of business loans and (2) higher competition in LAP.

In 1HFY15, yoy decline in two-wheeler loan book has reduced the share of consumer loans in the overall AUMs even as consumer durables business has reported robust growth. Incrementally, a likely lower growth in durables finance due to customer shift to online shopping poses a risk, in our view.

Bajaj Finance’s management has taken cognizance of these risks and will continue to renovate its product offerings. We highlight some recent management initiatives: (1) The company is gradually shifting to lifestyle financing (financing of furniture etc.). (2) It has launched a new vertical for e-commerce business; the company already offers some of its loan products online. (3) In order to improve its NIMs in business loans, Bajaj Finance will offer rural SME loans.

20 KOTAK INSTITUTIONAL EQUITIES RESEARCH Bajaj Finserv Banks/Financial Institutions

Exhibit 5: Bajaj Finance - quarterly financial statements March fiscal year-ends, 2QFY14-2QFY15 (` mn)

(% ch g .) 2Q FY15 2Q FY15 E 2Q FY14 1Q FY15 2Q FY15 E 2Q FY14 1Q FY15 1H FY15 1H FY14 (% ch g .) FY20 15 E Operational income 11,703 11,800 8,727 11,801 1 34 (1) 23,504 17,564 34 49,959 Interest expenses 5,445 5,500 3,560 4,996 1 53 9 10,441 6,874 52 21,506 Net operational income 6,258 6,300 5,167 6,805 1 21 (8) 13,063 10,690 22 28,453 Provisions/ write-offs 800 700 523 829 (13) 53 (3) 1,629 1,162 40 3,282 Recovery commission 497 475 415 469 (4) 20 6 966 773 25 2,265 Net operational income (post provisions) 4,961 5,125 4,229 5,507 3 17 (10) 10,468 8,754 20 22,906 Operating expenses 2,689 2,580 2,341 2,960 (4) 15 (9) 5,649 4,685 21 12,297 Other operational income 620 650 614 635 5 1 (2) 1,255 1,060 18 2,086 Other income 96 25 23 24 (74) 318 309 120 64 87 458 Profit before tax 2,9 8 7 3,220 2,5 25 3,20 6 8 18 (7) 6 ,19 3 5 ,19 4 19 13,15 3 Tax 1,016 1,095 855 1,092 8 19 (7) 2,108 1,766 19 4,472 Profit after tax 1,9 72 2,125 1,6 70 2,114 8 18 (7) 4,0 8 5 3,427 19 8 ,6 8 1

Other operational data AUM Consumer finance 111 83 107 33 3 111 83 33 Small business loans 150 97 144 54 4 150 97 54 Commercial 18 18 18 1 1 18 18 1 T o ta l AU Ms 28 0 19 8 26 9 41 4 28 0 19 8 41 Disbursements 0 0 Consumer loans 41 27 51 51 (18) 92 62 50 Small business loans 28 18 33 55 (14) 61 40 54 Commercial loans 8 6 9 20 (15) 16 13 23 Total disbursements 78 52 93 50 (16 ) 171 114 49

CAR (%) 19.3 20.9 18.0 Tier I (%) 15.1 17.7 15.2 Gross NPL(%) 1.4 1.1 1.1 Net NPLs (%) 0.5 0.3 0.3 NIM incl fees (KS - calc- %) 10.0 11.8 11.7 Cost to income (%) 46.3 49.1 46.6 RoAUM - annualised (%) 2.9 3.4 3.3

Source: Company, Kotak Institutional Equities

Loan growth driven by business loans

Bajaj Finance reported another quarter of strong growth in loans under management at 41% yoy to `280 bn, driven by growth in business loans (54% yoy). Growth in consumer loans was strong at 33% yoy, while loans to commercial segment grew 1% yoy (1% qoq) after 2 quarters of sequential decline. Within the consumer loan segment, durable finance increased by 53% yoy while two-wheeler loan book declined 5% yoy. While electronic and mobile finance is a large segment, the company has incrementally focused on lifestyle finance (finance of brown goods); on a low base (`3 bn, 1.1% of AUMs), this segment reported 164% yoy loan book growth. Overall disbursements grew 50% yoy, driven by 55% yoy growth in business loans and 51% yoy growth in consumer loans.

We expect growth momentum to remain strong, however, moderate to 29% yoy in FY2015E from 37% yoy growth in FY2014, driven by slowdown in consumer finance. Delay in recovery in auto sales and high competition in the personal loans and home loans is likely to affect growth in consumer finance segment. We factor loan growth at 23% CAGR between FY2015 and FY2017E.

NIM declines 130 bps yoy; to remain under pressure in medium term

Bajaj Finance’s NIM (calculated) declined by 130 bps yoy to 8.5%, led by pressure on lending yields (as a result of high competition) and shift in loan mix towards higher share of low- yielding SME loans. Management highlighted that high competition in LAP and housing loans is affecting lending yields in the segment. We expect margins to decline by 70 bps yoy to 11.3% in FY2015E led by (1) decline in yields, (2) shift in loan mix towards higher share of business loans and as (3) impact of capital raised in FY2014 comes off. We factor NIM at 10.8% and 10.7% for FY2016E and FY2017E, respectively.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 21 Banks/Financial Institutions Bajaj Finserv

NPLs increase ~30 bps qoq; collection efficiency declines 20-30 bps qoq

 Gross NPLs increased ~30 bps qoq to 1.4% as an infrastructure account slipped into NPL. We note that the management made a provision of `50 mn already in 1QFY15 for this account. Provision expenses grew 53% yoy to `800 mn during the quarter. The company recognizes NPLs on 180 days-past-due basis though provisioning policy is accelerated. Thus, gross NPLs will likely rise by 30-40 bps if RBI tightens NPL recognition norms to 90 days-past-due basis though impact on provisions will be negligible.

 Collection efficiency declines 20-30 bps qoq across most segments. Collection efficiency remained strong, though declined by 20-30 bps qoq across most segments, barring personal loans and SME loans.

Exhibit 6: Collections efficiency declined by 20-30 bps across most segments, barring personal loans and small business loans Collection efficiency for various products of Bajaj Finance, March fiscal year-ends, 2QFY13-2QFY15 (%)

2Q FY13 3Q FY13 4Q FY13 1Q FY14 2Q FY14 3Q FY14 4Q FY14 1Q FY15 2Q FY15 Consumer durables 97.7 97.9 97.8 98.3 98.3 98.4 98.2 98.5 98.2 2-wheeler portfolio 88.9 87.3 90.5 86.9 88.5 89.6 89.7 88.4 88.0 Personal loans cross sell 96.0 95.5 95.7 95.5 95.6 95.9 96.1 95.9 96.4 Small business 98.6 98.5 98.7 98.8 99.0 98.1 99.0 99.0 99.1 Loan against property 99.9 99.6 99.7 99.6 99.7 99.8 99.8 99.0 98.8 Home loans 99.6 99.9 99.8 99.7 99.8 99.8 99.9 99.2 98.9

Source: Company, Kotak Institutional Equities

Exhibit 7: Loan mix shifting towards higher share of consumer durable and SME loans Bajaj Finance - AUM break-up, March fiscal year-ends, 2013-1HFY15 (%)

20 13 20 14 1H FY15 Break-up (% of total AUMs) 2W and 3W loans 19.9 14.9 12.1 Consumer durables 10.0 10.5 12.3 Mortgages 35.2 40.4 38.8 LAP 26.3 28.7 27.7 Home loans 8.9 11.7 11.1 Commercial lending 4.3 3.6 3.5 Loans against securities 3.7 3.5 4.3 SME cross sell 2.1 3.0 3.5 Construction equipment finance 4.5 1.9 1.1 Business loans 7.3 8.4 9.4 Infra loans 2.5 2.2 1.8 Personal loans 10.1 10.7 11.6 Rural lending - 0.2 0.5 Lifestyle financing 0.4 0.7 1.1

Source: Company, Kotak Institutional Equities

22 KOTAK INSTITUTIONAL EQUITIES RESEARCH Bajaj Finserv Banks/Financial Institutions

Exhibit 8: Bajaj Finance - change in estimates March fiscal year-ends, 2015-17E (` mn)

New estimates Old estimates Old versus new (%) 20 15 E 20 16 E 20 17E 20 15 E 20 16 E 20 17E 20 15 E 20 16 E 20 17E Net interest income 30,539 36,756 44,668 30,374 35,668 42,676 0.5 3.1 4.7 Loan growth (%) 28 23 23 25 21 23 14.1 9.0 1.3 NIM (%) 11 11 11 11 11 11 (1.0) (0.6) 0.1 NPL provisions 3,282 4,108 5,274 3,360 3,959 5,039 (2.3) 3.8 4.7 Operating expenses 14,562 17,087 20,085 14,494 17,009 19,995 0.5 0.5 0.5 Employee 4,158 4,782 5,499 4,090 4,703 5,409 1.7 1.7 1.7 Others 10,405 12,305 14,587 10,405 12,305 14,587 — 0.0 — PBT 13,153 16,129 19,947 12,978 15,268 18,280 1.3 5.6 9.1 Tax 4,472 5,484 6,782 4,283 5,038 6,215 4.4 8.8 9.1 PAT 8,681 10,645 13,165 8,695 10,230 12,065 (0.2) 4.1 9.1

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 23 Banks/Financial Institutions Bajaj Finserv

Exhibit 9: Bajaj Finance – key growth rates and ratios March fiscal year-ends, 2012-17E (%)

20 12 20 13 20 14 20 15 E 20 16 E 20 17E Income statement growth (%) Total interest income 53.8 43.0 30.3 29.1 22.6 22.4 Total interest expense 97.4 61.6 30.5 36.7 25.8 23.7 Net interest income 37.8 33.2 30 .3 24.2 20 .4 21.5 Loan loss provisions (24.5) 17.8 41.8 27.3 25.2 28.4 Income post provisions 53.3 35.1 29.0 23.9 19.8 20.7 Net pre-prov income 38 .7 33.6 31.2 24.0 20 .4 21.4 Operating expenses 47.5 27.4 35 .1 26 .5 17.3 17.5 Employee expenses 31.5 28.8 39.0 22.0 15.0 15.0 Other Expenditure 6 6 .6 31.4 34.9 30 .0 20 .0 20 .0 Balance sheet growth (%) Net loans 69.0 33.6 37.4 28.5 22.6 23.0 Investments 10.0 (4.0) 436.3 10.0 10.0 11.0 Current Assets (32.3) 247.1 (15.6) 12.3 13.2 14.7 Net fixed assets 35.3 27.0 24.8 5.0 5.0 5.0 Total assets 5 1.8 43.2 33.0 27.3 21.9 23.5 Total borrowings 37.2 53.1 43.0 29.7 22.7 24.5 Shareholders funds 49.7 65.6 18.5 19.0 19.5 20.2 Asset management measures (%) Yield on assets 22.1 21.3 20.3 19.8 19.4 19.3 Yield on loans 20.4 20.1 19.1 18.9 18.6 18.5 Average cost of funds 9.4 10.4 9.2 9.3 9.3 9.3 D iffe re n ce 12.7 11.0 11.1 10 .5 10 .1 10 .0 Net interest income/earning assets 13.8 12.8 12.0 11.3 10 .8 10 .7 New provisions/average net loans 1.6 1.3 1.3 1.3 1.3 1.3 Tax rate 32.5 33.0 33.0 34.0 34.0 34.0 Dividend payout ratio 12.2 12.2 11.0 11.0 11.0 11.0 Profitability measures (%) Interest income/total income 99.4 99.1 98.3 98.5 98.5 98.6 Operating expenses/NII 46.9 44.7 46.0 47.0 45.8 44.3 Operating expenses/assets 6.2 5.4 5.3 5.2 4.9 4.7 Credit cost/average loans 1.6 1.3 1.3 1.3 1.3 1.3 Payout ratio 12.2 12.6 11.2 11.0 11.0 11.0 Equity/assets (EoY) 15.7 18.2 16.2 15.1 14.8 14.5 Debt equity ratio (X) 4.5 4.2 5 .0 5 .5 5 .6 5 .8 Du Pont analysis % of average assets Net interest income 13.2 12.0 11.4 10.9 10.6 10.5 Adj. net interest income 13.2 12.0 11.4 10.9 10.6 10.5 Loan loss provisions 1.4 1.2 1.2 1.2 1.2 1.2 Operating expenses 6.2 5.4 5.3 5.2 4.9 4.7 (1- tax rate) 67.5 67.8 65.9 66.0 66.0 66.0 Ro A 3.8 3.8 3.3 3.1 3.1 3.1 Average assets/average equity 6.3 5.8 5.9 6.4 6.7 6.8 Ro E 24.0 21.9 19 .5 19 .9 20 .4 21.1

Source: Company, Kotak Institutional Equities estimates

24 KOTAK INSTITUTIONAL EQUITIES RESEARCH Bajaj Finserv Banks/Financial Institutions

Exhibit 10: Bajaj Finance – income statement and balance sheet March fiscal year-ends, 2012-17E (` mn)

20 12 20 13 20 14 20 15 E 20 16 E 20 17E Income statement Total interest income 21,630 30,931 40,314 52,045 63,803 78,121 Total interest expense 7,462 12,059 15,732 21,506 27,046 33,454 Net interest income 14,168 18,872 24,582 30,539 36,756 44,668 Provisions and write/off 1,544 1,818 2,578 3,282 4,108 5,274 Net interest income (after prov.) 12,625 17,054 22,004 27,257 32,648 39,394 Net income pre loan loss provision 14,257 19,049 25,001 30,997 37,324 45,306 Operating expenses 6,691 8,523 11,511 14,562 17,087 20,085 Employee expense 1,904 2,451 3,408 4,158 4,782 5,499 Other expenditure 4,125 5,421 7,311 9,505 11,405 13,687 Pretax income 6,022 8,708 10,912 13,153 16,129 19,947 Tax provisions 1,958 2,803 3,722 4,472 5,484 6,782 N e t P ro fit 4,0 6 4 5 ,9 0 5 7,19 0 8 ,6 8 1 10 ,6 45 13,16 5 Dividends 496 747 802 955 1,171 1,448 Dividend tax 84 127 136 162 199 246 Adj. shares outstanding (mn) 41 50 50 50 50 50 EPS (Rs) 98 119 145 174 214 265 BPS (Rs) 492 677 802 954 1,141 1,371 Balance sheet Net loans 122,831 167,434 229,710 295,332 361,990 449,350 Investments 55 53 282 310 341 379 Current Assets 4,301 14,930 12,598 14,152 16,016 18,365 Deferred tax assets 692 904 1,392 1,392 1,392 1,392 Net fixed assets 1,388 1,762 2,199 2,309 2,424 2,545 Total assets 129 ,26 7 18 5 ,0 8 2 246 ,18 0 313,49 4 38 2,16 3 472,0 31 Liabilities Total borrowings 92,023 140,857 201,374 261,125 320,519 398,916 Current liabilities 15,952 8,981 2,533 2,533 2,533 2,533 Provisions 955 1,575 2,365 2,365 2,365 2,365 Total liabilities 10 8 ,9 30 15 1,413 20 6 ,271 26 6 ,0 22 325 ,416 40 3,8 13 Share capital 413 497 498 498 498 498 Reserves 19,709 33,173 39,411 46,975 56,250 67,720 Shareholders funds 20 ,336 33,6 70 39 ,9 0 9 47,472 5 6 ,747 6 8 ,218

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 25 Banks/Financial Institutions Bajaj Finserv

Exhibit 11: Bajaj Finserv - key financial ratios and growth rates March fiscal year-ends, 2012-17E (%) 20 12 20 13 20 14E 20 15 E 20 16 E 20 17E Growth in key parameters (%) Total income (28) 32 14 15 16 17 Premium (15) (1) (6) 13 17 17 Investment income (86) 530 53 11 9 14 Expenses (35) 35 16 16 16 18 PBT 29 22 3 14 13 14 PAT (post minority interest) 21 20 (7) 6 10 13 PBT before surrender premium 39 34 — — — — EPS 21 9 (7) 6 10 13 Loan book 69 36 37 29 23 24 Investments 1 3 (1) 35 15 16 Total assets 11 13 12 9 13 15 Policyholders funds (3) (7) (1) 2 4 7 Shareholders funds 43 55 19 6 19 15 Key ratios (%) PBT margin 19 17 16 15 15 15 Debt-equity (X) 1.8 1.8 2.2 2.6 2.7 2.9 RoA 3.4 3.6 3.1 3.0 3.0 3.0 RoE 32.2 25.6 17.9 16.9 16.5 16.1

Source: Company, Kotak Institutional Equities estimates

26 KOTAK INSTITUTIONAL EQUITIES RESEARCH Bajaj Finserv Banks/Financial Institutions

Exhibit 12: Bajaj Finserv - consolidated P&L and balance sheet March fiscal year-ends, 2012-17E (` mn)

20 12 20 13 20 14 20 15 E 20 16 E 20 17E Profit and loss (Rs mn) Total income 129 ,0 8 5 171,0 35 19 5 ,26 6 225 ,36 9 26 0 ,6 6 3 30 5 ,45 1 Interest income 20,906 31,968 41,393 53,395 65,184 79,534 Bajaj Finance 21,630 30,931 40,314 52,045 63,803 78,121 Others 176 1,037 1,079 1,350 1,381 1,413 Insurance premium 99,583 98,168 92,683 104,376 121,929 142,410 Investment income 6,253 39,397 60,399 66,873 72,826 82,783 Other income 2,343 1,502 791 725 725 725 E xpe n s e s 10 4,8 31 141,5 34 16 4,76 6 19 0 ,49 8 221,141 26 0 ,228 Interest expenses 7,462 12,059 15,732 21,506 27,046 33,454 Provisions 1,544 1,818 2,578 3,282 4,108 5,274 Operating expenses 27,901 32,993 35,262 40,839 47,546 55,510 Commission expenses 4,629 3,795 2,834 3,486 4,913 5,737 Depreciation 16 13 13 40 40 40 Benefits paid 74,036 114,249 110,071 114,899 123,541 133,881 Change in reserve (10,756) (23,393) (1,725) 6,446 13,946 26,333 PBT 24,25 4 29 ,5 0 1 30 ,5 0 0 34,8 71 39 ,5 22 45 ,223 Tax 5,210 6,613 8,562 11,381 13,391 15,334 PAT 19 ,0 43 22,8 8 8 21,9 38 23,49 0 26 ,131 29 ,8 8 9 Minority interest 5,321 6,472 6,603 7,220 8,210 9,558 PAT post minority interest 13,722 16 ,416 15 ,335 16 ,270 17,9 21 20 ,332 Shares (mn) 145 159 159 159 159 159 EPS (Rs) 94.8 103.2 96.4 102.2 112.6 127.8 BVPS (Rs) 347 490 585 622 740 851

Balance sheet Fixed assets 6,443 8,825 9,846 10,524 11,298 12,183 Loan book 122,831 167,434 229,710 295,332 361,990 449,350 Investments 457,544 470,347 464,529 628,677 724,749 837,345 Other current assets 7,768 23,061 43,104 (119,918) (179,073) (239,551) Total assets 5 9 4,5 8 6 6 6 9 ,6 6 7 747,18 9 8 14,6 14 9 18 ,9 6 4 1,0 5 9 ,328 Borrowings 92,023 140,857 201,374 261,125 320,519 398,916 Policyholders funds 356,587 333,194 331,469 337,915 351,861 378,194 Funds for future appropriation 2,291 13,175 1,839 19,324 23,267 28,037 Other liabilities 73,599 76,136 83,976 56,439 57,293 61,919 Total liabilities 5 24,49 9 5 6 3,36 1 6 18 ,6 5 8 6 74,8 0 3 75 2,9 40 8 6 7,0 6 6 Shareholders funds 5 0 ,20 2 78 ,0 14 9 3,115 9 8 ,9 12 117,741 135 ,443 Equity capital 7,234 7,956 7,956 7,956 7,956 7,956 Reserves 42,968 70,058 85,159 90,956 109,785 127,487 Minority interest 19 ,8 8 4 28 ,317 35 ,415 40 ,9 0 0 48 ,28 3 5 6 ,8 19

Source: Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 27

ADD Mindtree (MTCL) Technology OCTOBER 16, 2014 RESULT Coverage view: Attractive

2HFY15: A soft chapter in a strong story. Mindtree reported solid revenue growth of Price (`): 1,035 4.1% qoq to US$147 mn. The growth was broad-based across verticals and service Target price (`): 1,150 offerings. The company is reaping benefits of investments in front-end and a focused BSE-30: 26,349 approach to growth. We expect Mindtree to lead the industry with 17.7% US Dollar revenue growth in FY2015 and strong growth in FY2016. 2HFY15 performance will be a touch lighter than our estimate, leading to a marginal cut in estimates and a target price of `1,150 (`1,180 earlier).

Company data and valuation summary Mindtree Stock data Forecasts/Valuations 2014 2015E 2016E 52-week range (Rs) (high,low) 1,246-643 EPS (Rs) 53.7 63.7 71.6 Market Cap. (Rs bn) 86.6 EPS growth (%) 31.4 18.8 12.4 Shareholding pattern (%) P/E (X) 19.3 16.2 14.5 Promoters 15.7 Sales (Rs bn) 30.3 35.7 41.7 FIIs 38.8 Net profits (Rs bn) 4.5 5.4 6.0 MFs 8.2 EBITDA (Rs bn) 6.1 7.1 8.2 Price performance (%) 1M 3M 12M EV/EBITDA (X) 13.1 11.1 9.4 Absolute (10.9) 18.8 50.4 ROE (%) 30.5 29.3 26.9 Rel. to BSE-30 (8.5) 12.8 17.6 Div. Yield (%) 1.2 1.5 1.7

2QFY15—a solid quarter with broad-based revenue growth Mindtree reported solid revenue growth of 4.1% qoq and 18.6% yoy to US$147 mn, in line with our estimates. Continuing with the trend of the earlier quarter, revenue growth was broad-based. Travel & hospitality grew 8.6% qoq and retail, CPG and manufacturing verticals grew 6.5% qoq. From a geographic standpoint, the US grew 6.2% qoq and India, 18.9% qoq. EBITDA margins declined 20 bps sequentially. The impact of a wage revision was offset by lower visa costs (170 bps), higher utilization and rupee depreciation. Net income of `1.37 bn (+6.2% qoq, +6.8% yoy) includes Rs102 mn of forex gains and was 9.3% ahead of our estimate. Reaping dividends from investments in the front end

Mindtree added an account each to the US$20 mn and US$30 mn buckets. The largest account has ramped up to a run rate of US$50 mn with still significant potential to grow. After investing heavily to grow the top-10 accounts, the company rolled out a similar strategy to grow a broader basket of 30 clients. The company indicated at its earnings call that the top 30 accounts demonstrated robust growth. This growth was possible due to smart allocation of resources to areas of strength and accelerating investments in sales and marketing. Mindtree invested US$15 mn in ramping up its S&M team. The company made several high-profile recruitments from the competition. Mindtree’s S&M team is rather large with 206 members. Out of these 44 are in the hunting team and 75 are account managers. The rest are in the pre- sales function. There is significant scope to increase the cross-sell of services. The number of services adopted by Mindtree’s client base is less than two, which can ramp up to three over time. A soft patch in 2HFY15; but Mindtree will deliver highest growth in FY2015E. ADD

Seasonal weakness and possibly client-specific factors may impact 3QFY14 revenue growth. Mindtree expects growth to pick up in 4QFY15. We make marginal adjustments to our estimates due to a likely weak 3QFY15 and higher-than-expected investments. This results in a 2.9% cut in FY2016E EPS and reduction in target price to `1,150 from `1,180. Mindtree is investing in the right segments, customers and markets. This gives us confidence in its medium- term growth prospects. We maintain our positive view and ADD rating.

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

Attrition is the biggest concern

Most of the concerns relate to attrition at multiples, which we detail in three buckets.

 Attrition in Europe impacted growth. Mindtree’s Europe business grew 1.3% qoq to US$38.4 mn. Europe has been an area of strength. European markets suffered from attrition in the past four quarters, which in our view, impacted revenue growth. Mindtree is aggressively investing in sales efforts in Europe.

 Leadership changes. Mindtree suffered a few leadership exits over the past 4-5 quarters. This started with the departure of Anjan Lahiri, CEO of IT services business. Ravi Shankar, Chief People Officer and Ramesh Menon, head of the hi-tech vertical, exited recently. S. Janakiraman, CTO, will retire by the end of the year. The company may have strong bench strength, but the exits worry us.

 Increase in attrition rates. The attrition rate increased to19.7% on a quarterly annualized basis. The management indicated attrition was higher after conclusion of the annual performance management cycle (seasonality). It expects attrition to ease in coming quarters.

Offshore price decline may continue

Mindtree’s offshore billing rates have been declining for several quarters now (see Exhibit 5). 2QFY15 offshore realizations declined 1.5% qoq. Service delivery to a few strategic clients from non-India offshore locations had a role to play in the decline in offshore pricing. The decline also coincided with growth in infra management services (not in this quarter, though). Mindtree established strong capabilities in remote infra management through its mWatch platform and offers services at competitive rates thanks to investments in automation. Infra-management services-led growth could impact offshore pricing, though not profitability.

TCV may appear strong but has little utility

Mindtree announced signings with total contract value (TCV) of US$165 mn, out of which US$102 mn was from renewals and US$63 from new contracts. Additional disclosure on the split between renewal and new scope projects is welcome. However we still find little utility in this disclosure due to lack of additional information on duration of deals and order book. We struggle to use this number in our growth forecast. To be fair to Mindtree, we also do not find any utility in TCV announcements of other companies.

Key highlights from the 2QFY15 earnings call

 Commentary on demand in the US. The management indicated its deal pipeline in the US was healthy and decision cycles and demand outlook in US were stable.

 Volume growth and realizations. Volume growth in 2QFY15 was 4.1% qoq and blended realizations, largely flat. The management expects billing rates to be stable.

 Fresher hiring to pick up in 2HFY15. The company hired 250 freshers in 1HFY15 and plans to add 350/450 in 3QFY15/4QFY15.

 Utilization. The utilization excluding trainees and utilization including trainees increased by 180 bps and 140 bps to 74.2% and 73.5%, respectively. The company expects the utilization rate to ease due to aggressive fresher hiring in 2HFY15

 Onsite offshore mix. The contribution of onsite to Mindtree’s total effort increased by about 300 bps over the past couple of years. The company attributed this to projects in the digital space that tend to be onsite-centric initially. Additionally, the onsite mix is higher in early engagements. The management expects the onsite mix to be higher in the near term

KOTAK INSTITUTIONAL EQUITIES RESEARCH 29 Technology Mindtree

Exhibit 1: Mindtree - 2QFY15 interim results (Indian GAAP), March fiscal-year ends (Rs mn)

Ch a n g e (%) Ch a n g e 2Q FY15 2Q FY15 E 2Q FY14 1Q FY15 2Q FY15 E 2Q FY14 1Q FY15 1H FY15 1H FY14 (%) FY20 15 E Revenues (US$ mn) 147.0 147.0 124.0 141.3 0.0 18.5 4.0 288.3 241.7 19.3 590.4 Re ve n ue s 8 ,8 8 6 8 ,8 78 7,6 9 6 8 ,435 0 .1 15 .5 5 .3 17,321 14,173 22.2 35 ,712 Direct costs (5,196) (5,242) (4,448) (4,874) (0.9) 16.8 6.6 (10,070) (8,272) 21.7 (20,935) Gross profit 3,6 9 0 3,6 37 3,248 3,5 6 1 1.5 13.6 3.6 7,25 1 5 ,9 0 1 22.9 14,777 SG&A expenses (1,935) (1,908) (1,650) (1,876) 1.4 17.3 3.1 (3,811) (3,112) 22.5 (7,697) EBITDA 1,75 5 1,729 1,5 9 8 1,6 8 5 1.5 9 .8 4.2 3,440 2,78 9 23.3 7,0 8 0 Depreciation (235) (237) (197) (228) (1.0) 19.3 3.1 (463) (378) 22.5 (975) EBIT 1,5 20 1,49 2 1,40 1 1,45 7 1.9 8 .5 4.3 2,9 77 2,411 23.5 6 ,10 5 Interest — (0) (2) — — (3) (2) Other income 241 136 248 210 451 983 774 Profit before tax 1,76 1 1,6 27 1,6 47 1,6 6 7 8 .2 6 .9 5 .6 3,428 3,39 1 1.1 6 ,8 78 Tax (387) (370) (360) (373) (760) (750) (1,524) N e t pro fit 1,374 1,25 7 1,28 7 1,29 4 9 .3 6 .8 6 .2 2,6 6 8 2,6 41 1.0 5 ,35 4 EPS (Rs/ share) 16 .4 15 .0 15 .4 15 .4 9 .3 6 .3 6 .2 31.8 31.6 0 .6 6 3.7 Shares outstanding (mn) 83.9 83.9 83.5 83.9 83.9 83.5 84.0 Margins (%) Gross margin 41.5 41.0 42.2 42.2 41.9 41.6 41.4 SG&A as % of revenues 21.8 21.5 21.4 22.2 22.0 22.0 21.6 EBITDA margin 19.8 19.5 20.8 20.0 19.9 19.7 19.8 Tax rate (%) 22.0 22.7 21.9 22.4 22.2 22.1 22.2

Source: Company, Kotak Institutional Equities estimates

Exhibit 2: Key changes to estimates, fiscal year-ends March, 2015-16E

N e w O ld Ch a n g e (%) 20 15 E 20 16 E 20 15 E 20 16 E 20 15 E 20 16 E Revenues (Rs mn) 35 ,712 41,6 70 35 ,9 70 41,744 (0 .7) (0 .2) Revenues (US$ mn) 590 683 595 684 (0 .7) (0 .2) Gro wth (%) 17.7 15 .7 18 .5 15 .1 EBITDA (Rs mn) 7,080 8,185 7,180 8,392 (1.4) (2.5) Net Profit (Rs mn) 5,354 6,017 5,320 6,198 0.6 (2.9) Fully diluted EPS (Rs/share) 6 3.7 71.6 6 3.3 73.8 0 .6 (2.9 ) Re/ $ rate 60.5 61.0 60.5 61.0 (0.0) (0.0) EBITDA margin (%) 19.8 19.6 20.0 20.1

Source: Kotak Institutional Equities estimates

Exhibit 3: Strong growth from the top account continues

12 q tr S e p-11 D e c-11 Ma r-12 Jun -12 S e p-12 D e c-12 Ma r-13 Jun -13 S e p-13 D e c-13 Ma r-14 Jun -14 S e p-14 CQ GR (%) Revenues (US$ mn) Top client 7.1 8.5 7.9 8.0 8.7 9.0 9.0 9.2 9.8 9.9 10.9 12.3 13.4 5.4 Top-5 clients 28.4 31.8 33.0 35.3 36.2 37.0 35.8 36.7 39.2 41.1 44.0 45.6 47.6 4.4 Top-10 clients 42.6 45.6 47.9 49.7 50.2 51.8 51.6 54.1 58.9 62.2 65.3 69.2 71.7 4.4 Gro wth (%) Top client 9.5 19.9 (7.4) 1.8 8.4 3.7 0.3 1.6 6.7 1.2 9.8 12.9 8.8 Top-5 clients 23.2 12.2 3.6 7.2 2.3 2.4 (3.3) 2.5 6.7 4.8 7.1 3.8 4.4 Top-10 clients 16.8 7.2 5.0 3.7 1.1 3.1 (0.2) 4.8 8.8 5.5 5.1 6.0 3.6

Source: Company, Kotak Institutional Equities

30 KOTAK INSTITUTIONAL EQUITIES RESEARCH Mindtree Technology

Exhibit 4: Strong growth in IMTS over the past two years

IMS revenues (US$ mn) - LHS IMS as % of total - RHS 30 24

25 20

20 16

15 12

10 8

5 4

0 0

Jun-10 Jun-12 Jun-14 Jun-09 Jun-11 Jun-13

Sep-10 Sep-11 Sep-12 Sep-13 Sep-09 Sep-14

Dec-09 Dec-10 Dec-11 Dec-13 Dec-12

Mar-10 Mar-12 Mar-14 Mar-13 Mar-11

Source: Company, Kotak Institutional Equities

Exhibit 5: Offshore billing rates have declined substantially in the past two years

Offshore billing rates (US$/hour) 26

Sep-10 Sep-11 Sep-13 Sep-14 Sep-08 Sep-09 Sep-12

Mar-10 Mar-11 Mar-13 Mar-14 Mar-12 Mar-09

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 31 Technology Mindtree

Exhibit 6: Attrition has risen significantly in the last three quarters

Quarterly annualized attrition (%) 40

10 Quarterly annualized attrition (%) attrition Quarterly annualized

Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14

Mar-10 Mar-11 Mar-12 Mar-13 Mar-14

Source: Company, Kotak Institutional Equities

32 KOTAK INSTITUTIONAL EQUITIES RESEARCH Mindtree Technology

Exhibit 7: Mindtree- key operational metrics

S e p-12 D e c-12 Ma r-13 Jun -13 S e p-13 D e c-13 Ma r-14 Jun -14 S e p-14 Revenues (US$ mn) 10 7.3 10 9 .9 113.0 117.7 124.0 127.1 132.8 141.3 147.0 Revenue by geographical segment (%) USA 58.1 55.8 55.3 57.8 57.5 57.6 58.8 59.2 60.4 Europe 29.3 30.2 29.3 27.4 28.8 28.3 28.0 26.8 26.1 India 6.0 6.3 6.1 5.8 4.9 4.7 3.7 3.5 4.0 Rest of the world 6.6 7.7 9.3 9.0 8.8 9.4 9.5 10.5 9.5 Revenue by service offering (%) - new classification Development 25.3 25.6 25.2 26.5 26.1 25.3 23.3 24.2 24.0 Engineering 15.3 13.3 12.5 11.3 11.1 10.1 9.8 9.7 9.4 Maintenance 21.5 21.7 21.7 22.5 22.7 23.7 22.6 20.6 21.2 Consulting 3.6 3.2 2.9 2.8 3.0 3.3 3.8 3.8 4.2 Package implementation 2.7 4.1 4.6 3.2 2.5 2.4 4.1 5.4 5.4 IP led revenue 1.3 1.3 1.7 1.5 0.8 0.7 1.1 1.7 1.6 Independent testing 17.7 17.7 17.6 18.0 17.6 16.6 16.7 15.7 15.5 Infrastructure management & Tech support 12.8 13.1 13.8 14.3 16.3 17.8 18.6 18.9 18.7 Revenue by industry (%) - old classification Manufacturing & retail 18.8 18.9 19.9 20.9 21.6 21.5 22.1 BFSI 23.0 22.8 21.8 22.8 22.7 23.3 23.3 Travel, media & services 18.8 19.9 19.9 19.7 20.1 20.6 19.7 Others 7.9 8.4 8.6 7.7 7.1 7.5 7.5 PES 31.5 29.9 29.8 28.9 28.5 27.0 27.4 Revenue by industry (%) - new classification Hi-Tech & Media Services 34.1 33.1 31.8 32.7 32.7 BFSI 22.8 22.7 23.3 22.7 22.8 Retail, CPG & Manufacturing 20.9 21.6 22.1 21.2 21.6 Travel & Hospitality 14.5 15.5 15.4 16.4 17.1 Others 7.7 7.1 7.4 7.0 5.8 Revenue by project type (%) Fixed price 38.8 42.3 41.3 40.8 40.4 41.4 42.5 43.8 43.6 Time & materials 61.2 57.7 58.7 59.2 59.6 58.6 57.5 56.2 56.4 Effort mix (%) Onsite 14.4 14.6 14.3 15.1 16.5 16.3 17.2 17.0 17.6 Offshore 85.6 85.4 85.7 84.9 83.5 83.7 82.8 83.0 82.4 Revenue mix (%) Onsite (%) 37.8 37.6 37.4 38.7 41.4 42.8 43.8 44.2 45.6 Offshore (%) 62.2 62.4 62.6 61.3 58.6 57.2 56.2 55.8 54.4 Effort and Utilization Onsite - Billled hours 541,116 546,662 552,834 608,869 703,139 712,041 764,071 800,872 865,381 Offshore - Billed hours 3,222,190 3,189,092 3,322,392 3,426,583 3,564,643 3,643,072 3,685,294 3,917,308 4,046,150 Total 3,763,306 3,735,754 3,875,226 4,035,452 4,267,782 4,355,113 4,449,365 4,718,180 4,911,531 Fee revenues (US$ mn) Onsite 40.1 41.0 41.6 45.1 50.5 53.6 57.4 61.8 66.3 Offshore 66.1 68.0 69.8 71.4 71.6 71.7 73.6 77.9 79.2 Utilization (%) Including trainees 71.7 71.4 69.6 69.6 65.9 67.4 68.5 72.1 73.5 Excluding trainees 72.3 73.1 70.9 74.0 70.3 68.7 68.7 72.4 74.2 Client metrics Number of active clients 247 245 232 222 220 208 207 206 200 New clients added 11 8 5 9 9 9 15 3 8 US$1 mn clients 73 70 74 72 70 68 73 75 77 US$5 mn clients 17 21 20 20 21 22 24 26 27 US$10 mn clients 8 9 9 10 10 13 13 13 13 US$20 mn clients 5 5 5 6 6 6 7 US$30 mn clients 3 3 3 3 3 3 4 Client contribution to revenue (%) Top customer 8.1 8.2 8.0 7.8 7.9 7.8 8.2 8.7 9.1 Top 5 customers 33.7 33.7 31.7 31.2 31.6 32.3 33.1 32.3 32.4 Top 10 customers 46.8 47.1 45.7 46.0 47.5 48.9 49.2 49.0 48.8 Revenue from repeat business 99.4 98.9 99.4 99.4 99.4 99.6 99.1 99.2 99.7 DSO 73 72 70 77 74 73 72 71 72 Employee metrics Software professionals 10,226 10,280 10,912 11,545 12,169 12,193 12,122 12,037 12,204 Sales and support 657 672 679 694 772 799 804 808 814 T o ta l 10 ,8 8 3 10 ,9 5 2 11,5 9 1 12,239 12,9 41 12,9 9 2 12,9 26 12,8 45 13,0 18 Gross addition 454 443 974 1,057 1,122 397 397 516 810 Net addition 53 69 639 648 702 51 (66) (81) 173 Attrition (LTM) 16.3 15.1 13.4 12.4 11.9 11.6 12.7 14.2 15.7

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 33 Technology Mindtree

Exhibit 8: Condensed consolidated financials of Mindtree, March fiscal year-ends, 2013-17E (Rs mn)

20 13 20 14 20 15 E 20 16 E 20 17E Profit model Revenues 23,618 30,316 35,712 41,670 47,925 EBITDA 4,8 6 0 6 ,10 0 7,0 8 0 8 ,18 5 9 ,428 Interest (expense)/income (10) (4) (2) (2) (2) Depreciation (624) (809) (975) (1,185) (1,459) Other income 10 496 774 762 879 Pretax profits 4,236 5 ,78 3 6 ,8 78 7,76 1 8 ,8 47 Tax (847) (1,275) (1,524) (1,744) (2,109) Profit after tax 3,38 9 4,5 0 8 5 ,35 4 6 ,0 17 6 ,738 Diluted earnings per share (Rs) 40 .8 5 3.7 6 3.7 71.6 8 0 .2 Balance sheet Total equity 13,137 16,405 20,199 24,464 29,239 Deferred taxation liability (360) (402) (402) (402) (402) Total borrowings 249 27 27 27 27 Current liabilities 3,524 4,562 5,084 5,777 6,503 Total liabilities and equity 16 ,5 5 1 20 ,5 9 3 24,9 0 9 29 ,8 6 7 35 ,36 8 Cash 1,238 1,184 2,541 4,591 7,445 Other current assets 7,881 10,141 12,010 14,087 16,287 Tangible fixed assets 3,160 3,932 5,023 5,853 6,300 Total assets 16 ,5 5 1 20 ,5 9 3 24,9 0 9 29 ,8 6 7 35 ,36 8 Free cash flow Operating cash flow, excl. WC 4,933 6,081 7,099 8,185 9,428 Tax paid (969) (1,297) (1,524) (1,744) (2,109) Working capital changes (1,022) (1,766) (1,347) (1,385) (1,474) Capital expenditure (1,057) (1,517) (2,085) (2,015) (1,906) Free cash flow 1,8 8 5 1,5 0 1 2,144 3,0 41 3,9 40 Ra tio s (%) EBITDA margin 20.6 20.1 19.8 19.6 19.7 EBIT margin 17.9 17.5 17.1 16.8 16.6 Net debt/equity (0.4) (0.4) (0.4) (0.4) (0.4) RoAE 29.8 30.5 29.3 26.9 25.1 Ro ACE 29 .0 27.7 25 .9 24.3 22.6

Source: Company, Kotak Institutional Equities estimates

34 KOTAK INSTITUTIONAL EQUITIES RESEARCH

SELL UltraTech Cement (UTCEM) Cement OCTOBER 16, 2014 UPDATE Coverage view: Cautious

The global Indian. Unconfirmed media reports indicate Ultratech (UTCEM) is a Price (`): 2,467 potential bidder for the global assets of Holcim-Lafarge, which looks to dispose of select Target price (`): 2,000 assets to comply with anti-competition laws in various geographies. The acquisition may BSE-30: 26,349 entail a price of EUR5-7 bn, almost equivalent to Ultratech’s enterprise value. A potential increase in leverage to fund the asset acquisition and exposure to new and possibly less lucrative markets aside, valuations are rich. We maintain SELL and a target price of Rs2,000.

Company data and valuation summary UltraTech Cement Stock data Forecasts/Valuations 2014 2015E 2016E 52-week range (Rs) (high,low) 2,872-1,634 EPS (Rs) 74.7 78.3 98.8 Market Cap. (Rs bn) 676.9 EPS growth (%) (23.0) 4.8 26.2 Shareholding pattern (%) P/E (X) 33.0 31.5 25.0 Promoters 61.7 Sales (Rs bn) 200.8 231.0 265.8 FIIs 20.4 Net profits (Rs bn) 20.5 21.5 27.1 MFs 1.8 EBITDA (Rs bn) 36.2 42.3 56.0 Price performance (%) 1M 3M 12M EV/EBITDA (X) 18.7 16.9 12.4 Absolute (6.5) (1.8) 24.8 ROE (%) 12.7 11.9 13.4 Rel. to BSE-30 (4.0) (6.8) (2.4) Div. Yield (%) 0.4 0.4 0.4

Global ambitions may bring with them a highly leveraged balance sheet

Ultratech is a potential bidder to acquire the assets of Holcim-Lafarge, which looks to dispose of cement assets in select geographies to comply with various anti-competition laws. The sale consideration may be as high as EUR5-7 bn (UTCEM’s enterprise value is EUR8.7 bn). It had sales of EUR5 bn and EBITDA of EUR0.8 bn in CY2013. The acquisition may take away the comfort of Ultratech’s so far under-leveraged balance sheet, with net debt-to-equity rising sharply to 2.4-3.2X from 0.3X. The assets initially likely to be put up for sale do not include any in India, but the media article did refer to some Indian assets, as well. It appears Ultratech is interested in retaining assets in select geographies like Brazil and India and disposing of assets in developed economies such as the US and Europe.

East India likely to be more consolidated—with or without the asset acquisition

Lafarge is a meaningful player in East India producing 8.6 mtpa out of the industry capacity of 47 mtpa. Competitive dynamics will maintain the status quo only if Lafarge’s assets in India are sold to a third party, other than Ultratech or left merged with Holcim (through ACC and Ambuja) the other dominant player in the region. If Ultratech were to acquire Lafarge’s assets in East India, its market share (by capacity) would increase to 23% from 43% and East India would acquire a more dominant share in Ultratech’s sales mix, accounting for 27% of its capacity (17% currently).

Valuations still steep, global ambitions may trigger significant uncertainties

Ultratech trades at 12X EV/EBITDA on FY2016E earnings, lofty considering our earnings assumptions factor near doubling of EBITDA over the next two years, aided by 9% CAGR in volumes and 14% CAGR in EBITDA/ton. Global ambitions may trigger significant uncertainty— (1) the high acquisition price and consequent leverage if Ultratech were to bid for all the assets up for sale, (2) exposure to multiple geographies that may not have as promising a growth profile as the home market and (3) uncertainty about the sale of assets in developed markets that may not be as lucrative a proposition for the company. We maintain SELL and target price of Rs2,000.

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

Exhibit 1: Acquisition of Lafarge’s assets in India would dramatically increase consolidation in the East India market Capacity details of Holcim, Lafarge and Ultratech in India (mn tons)

Holcim+Lafarge Ultratech+Lafarge ACC Ambuja Holcim Lafarge Capacity Mix (%) Ultratech Capacity Mix (%) East 5 6 11 9 20 28 11 20 27 West 4 11 15 — 15 21 18 18 24 Central 5 2 6 — 6 9 6 6 8 North 6 10 16 3 18 27 11 14 19 South 11 — 11 — 11 16 17 17 23 Total 30 28 58 11 69 100 63 74 100

Source: Companies, Kotak Institutional Equities estimates

Exhibit 2: We factor 9% CAGR in volumes and 14% CAGR in EBITDA/ton over the next two years Key operational and financial metrics for Ultratech, March fiscal year-ends, 2014-17E (Rs bn)

Grow th (%) 2014 2015E 2016E 2017E 2014 2015E 2016E 2017E Key Standalone financials (Rs bn) Revenue 201 231 266 305 — 15 15 15 EBITDA 36 42 61 76 (20) 17 43 25 PAT 20 21 27 38 (23) 5 26 39 Key operating metrics Volumes (mn tons) 41 46 50 54 2 10 8 8 Realization (Rs/ton) 4,842 5,051 5,364 5,683 (2) 4 6 6 Operating cost (Rs/ton) 3,970 4,126 4,233 4,361 4 4 3 3 Profitability (Rs/ton) 872 925 1,131 1,322 (22) 6 22 17

Source: Company, Kotak Institutional Equities estimates

36 KOTAK INSTITUTIONAL EQUITIES RESEARCH UltraTech Cement Cement

Exhibit 3: Profit model, balance sheet and cash model of Ultratech, March fiscal year-ends, 2013-17E (Rs mn)

2013 2014 2015E 2016E 2017E Profit model (Rs mn) Net sales 200,230 200,779 230,983 265,785 304,811 EBITDA 45,235 36,160 42,297 56,025 70,908 Other income 4,620 5,310 5,907 4,636 4,992 Interest (2,097) (3,192) (5,328) (6,154) (5,234) Depreciation (9,454) (10,523) (11,872) (15,036) (15,593) Pretax profits 38,304 27,755 31,004 39,470 55,072 Tax (11,700) (7,266) (9,521) (12,368) (17,430) Net profits 26,605 20,489 21,482 27,102 37,642 Extraordinary items — 956 — — — Earnings per share (Rs) 101 75 78 99 137 Balance sheet (Rs mn) Total equity 171,407 193,933 218,317 245,514 282,278 Total borrowings 54,085 51,993 74,486 61,486 52,462 Currrent liabilities 48,595 51,614 58,887 67,217 76,536 Total liabilities and equity 274,088 297,540 351,691 374,217 411,276 Cash 1,427 2,775 13,915 39,847 62,819 Current assets 47,423 54,351 59,053 67,685 77,364 Total fixed assets 174,151 186,497 248,805 256,769 261,176 Investments 51,087 53,917 29,917 9,917 9,917 Total assets 274,088 297,540 351,691 374,217 411,276 Free cash flow (Rs mn) Operating cash flow, excl. working capital 35,115 33,050 38,635 46,280 55,420 Working capital 909 (3,910) 2,571 (301) (361) Capital expenditure (34,491) (21,350) (74,180) (23,000) (20,000) Free cash flow 1,534 7,790 (32,974) 22,978 35,060

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 37

REDUCE Tata Steel (TATA) Metals & Mining OCTOBER 16, 2014 UPDATE Coverage view: Cautious

Europe longs division sale may add `30 to fair value. Tata Steel has entered into an Price (`): 456 MOU with the Klesch Group for the eventual sale of its long products business. The Target price (`): 505 Europe longs division accounts for 21% of TSE volumes but negligible EBITDA due to BSE-30: 26,349 inefficient operations and poor demand from the construction market. Based on recent comparable transactions in Europe, this sale can add `30/share to our fair value. But we maintain our cautious view given (1) weakening steel prices and (2) increasing regulatory costs of mining in India.

Company data and valuation summary Tata Steel Stock data Forecasts/Valuations 2014 2015E 2016E 52-week range (Rs) (high,low) 580-301 EPS (Rs) 37.3 47.9 48.3 Market Cap. (Rs bn) 442.9 EPS growth (%) 990.3 28.5 0.8 Shareholding pattern (%) P/E (X) 12.2 9.5 9.4 Promoters 31.4 Sales (Rs bn) 1,486.1 1,543.0 1,612.3 FIIs 18.2 Net profits (Rs bn) 36.2 46.5 46.9 MFs 2.3 EBITDA (Rs bn) 164.1 187.5 193.8 Price performance (%) 1M 3M 12M EV/EBITDA (X) 7.1 6.3 6.2 Absolute (11.6) (11.2) 51.2 ROE (%) 9.7 10.9 10.0 Rel. to BSE-30 (9.2) (15.7) 18.3 Div. Yield (%) 2.2 1.8 1.8

Tata Steel in MOU with Klesch Group to sell its long products division

Tata Steel has entered into an MOU with Klesch Group to undertake due diligence and negotiations to sell its long products Europe business and associated distribution activities. The major steel making facility for the long products division is at Scunthorpe Steel Works (in North- east England), which accounted for 26% or ~4.5 mtpa (1.5 mtpa is mothballed) of Tata Steel Europe’s (TSE) liquid steel-making capacity (total 17.4 mtpa); steel production (liquid) from Scunthorpe was 3.2 mn tons in FY2014 (21% of TSE, see Exhibit 4). Besides Scunthrope, the sale MOU includes other facilities of the long products division such a Teeside beam mill and 20 associated distribution sites. Note that due diligence and negotiations can be a lengthy affair, given the stakeholders involved include trade unions and work councils and can take 6-8 months. Sale of the longs business will be at a significant discount to the original purchase value

TSE’s FY2014 EBITDA of US$36/ton and was led mainly by its flat product division. We estimate negligible EBITDA from TSE’s longs division, given depressed demand from the construction sector in Europe; even TSE’s cost-cutting exercise had largely been directed at its longs division. Other European companies in the longs segment, such as Lucchini and Liepajas Metalurgs, have struggled due to poor demand, leading to their bankruptcies. This has reflected in their valuations too – the bankrupt Latvian rebar maker, Liepajas Metalurgs, was sold at EV/ton of a mere US$161. The emerging valuation scenarios for Lucchini Steel, based on prospective bids, stand at US$120/ton from Cevital (according to media reports) and less than US$77/ton from JSW Steel (bids only for the finishing mills, no bids for steelmaking capacities). The move reflects the management’s sharp focus on controlling debt; our REDUCE rating stays

The management’s attempt to sell the European longs division is encouraging and adds to recent steps to control leverage through the sale of non-strategic assets like Dhamra Port and Borivali land. The current due diligence and negotiations can be a long drawn out process and the finality of the deal is uncertain. However, if the recent comparable transactions in Europe are anything to go by, we estimate the successful sale of TSE’s longs division can add `30- 60/share to Tata Steel’s fair value (see Exhibits 1 and 2). However, we maintain our cautious view on the stock due to (1) softening in steel prices due to lower global iron ore prices and (2) increasing costs of mining/raw material due to regulatory action. Our REDUCE rating stays.

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

Depressed transaction valuations in western economies

ThyssenKrupp, in its newly built steel plant in Alabama, US spent US$5 bn on its steelmaking capacity of 5.3 mtpa – at EV/ton of about US$1,000. However it sold this asset in few years to Arcelor Mittal and Nippon Steel for an EV/ton of a mere US$290/ton. Given depressed steel prices and markets, the recent transaction multiples for steel plants in the US have typically ranged between EV/ton of US$300-500. Also, these acquisitions have mostly been in the flat products business, with relatively better market conditions.

The poor state of the European steel market is well reflected in lower transaction valuations of sub-US$200 in EV/ton. In September 2014, the bankrupt Latvian rebar maker Liepajas Metalurgs, with steelmaking capacity of 850,000 tons, was acquired by the KVV group for EUR107 mn (US$137 mn). The assets of another bankrupt European steelmaker, Lucchini Steel, have been on the block for a few months now with limited buying interest. Media reports indicate JSW Steel bid for only three finishing mills of 1.3 mtpa capacity out of Lucchini’s total steelmaking capacity of 2.5 mtpa, which includes the blast furnace. Media reports indicate another bidder, Cevital, showed interest in acquiring the assets at US$300 mn or EV/ton of US$120. At these multiples, Tata Steel’s Europe long products business will be worth only US$500-700 mn.

We understand that the book value of Tata Steel’s long products’ fixed assets is GBP350 mn.

Exhibit 1: Recent acquisitions/bids for European long product steelmakers were depressed with EV/ton at sub-US$200; US steel valuations were relatively better Comparable transaction multiples (EV/ton) of recent steel company acquisitions in western economies

EV Ca pa city E V/to n P e rio d Co mpa n y S te e l mill Acq uire r U S $ mn mtpa U S $ Re ma rk s Nov-13 ThyssenKrupp Alabama,USA Arcelor Mittal, 1,550 5.3 292 Flat products, Thyssenkrupp spent Nippon Steel >US$ 5 bn in setting up this project Sep-14 Liepajas Metalurgs Liepaja, Latvia (Europe) KVV Group 137 0.9 161 Rebar mill, Operates Electric arc furnace through scrap melting Sep-14 Severstal Columbus Mississippi, USA Steel Dynamics 1,625 3.1 524 Flat products through EAFs Sep-14 Severstal's North America Dearborn, Michigan A K Steel 707 2.5 283 Flat products through Blast furnace assets Oct-14 Gallatin Steel company (stake Kentucky, USA Nucor 770 1.8 428 Flat products through EAFs owned by Arcelor, Gerdau)

Other bids for ongoing transactions per media reports Oct-14 Lucchini Steel Italy, Europe Cevital 300 2.5 120 Long products through Blast Furnace route JSW Steel 100 1.3 77 Long products, JSW Steel is only bidding for finishing mills of Lucchini, per media reports

Source: Companies, media reports, Kotak Institutional Equities estimates

Successful deal execution may add `30/share to fair value Successful deal execution will impact our SOTP of Tata Steel in two ways—(1) debt reduction to the extent of consideration received for the longs division – a positive, and (2) lowered by a cut in EV from EBITDA contribution from parting of the longs product division (at 5X EBITDA for the European business). Note that Tata Steel does not disclose EBITDA contributions separately from the flats and longs divisions. We estimate most of Europe’s EBITDA contribution is led by the flats division with negligible contribution from the longs division.

On successful deal execution, the increase in fair value of Tata Steel will be the outcome of an interplay between these two variables, sale consideration of the longs division and EBITDA contribution. In the following table, we present the sensitivity to an increase in our fair value under different assumptions of (1) realization from the sale of the longs division, and (2) EBITDA/ton contribution of TSE’s longs division (part of TSE’s overall EBITDA).

KOTAK INSTITUTIONAL EQUITIES RESEARCH 39 Metals & Mining Tata Steel

Exhibit 2: Successful deal execution can add `30-60/share to the fair value of Tata Steel Sensitivity analysis of an increase in Tata Steel’s fair value based on different valuation scenarios (`/share)

Longs division sale value - EV/ton (US$)

41.34 10 0 15 0 20 0 25 0 30 0 35 0 0 25 38 51 64 76 89 5 21 33 46 59 72 84 10 16 29 41 54 67 80 15 11 24 37 49 62 75

20 6 19 32 45 57 70 EBITDA/ton from

longs division (US$) 25 2 14 27 40 52 65

Source: Kotak Institutional Equities estimates

Exhibit 3: Major facilities of Tata Steel Europe's long products business, offered for sale

S N o . Facility name 1 Scunthorpe integrated steelworks 2 Teesside Beam Mill, Lackenby 3 Special Profiles, Skinningrove & Darlington 4 Dalzell Plate Mill, Scotland 5 Clydebridge, Scotland 6 Immingham Bulk Terminal (port terminal) 7 Hayange Rail Mill, north east France 8 Engineering workshop, Workington 9 Rail consultancy, York 10 Associated 20 different distribution sites

Source: Company, Kotak Institutional Equities

Exhibit 4: TSE’s Scunthorpe produces long products and Port Talbot, Ijmuiden and Rotherham produce flat products Details of plant-wise capacity and production of Tata Steel Europe (mn tons)

20 11 20 12 20 13 20 14 Capacity (mn tons) Port Talbot, Wales 4.9 4.9 4.9 4.9 Scunthorpe, England 4.5 4.5 4.5 4.5 Rotherham, England 1.3 1.2 1.2 0.8 Ijmuiden, Netherlands 7.7 7.2 7.2 7.2 T o ta l 18 .4 17.8 17.8 17.4 Liquid steel production (mn tons) Port Talbot, Wales 3.8 3.4 3.0 4.5 Scunthorpe, England 3.4 3.2 3.1 3.2 Rotherham, England 0.6 0.7 0.6 0.7 Ijmuiden, Netherlands 6.8 6.7 6.6 7.1 T o ta l 14.6 14.0 13.3 15 .5 Steel deliveries (mn tons) 14.9 14.0 13.1 13.9

Source: Company, Kotak Institutional Equities

40 KOTAK INSTITUTIONAL EQUITIES RESEARCH Tata Steel Metals & Mining

Exhibit 5 : Tata Steel - key assumptions, March fiscal-year ends, 2012-17E, (` mn)

20 12 20 13 20 14 20 15 E 20 16 E 20 17E Tata Steel (India) Average HRC Price (US$/ton) 680 574 526 510 510 500 Crude Steel capacity (mn tons) 6.8 9.7 9.7 9.7 12.7 12.7 Volume (mn tons) 6.6 7.5 8.5 9.0 9.5 10.7 EBITDA margin (%) 34.0 29.1 30.7 30.6 28.7 28.3 EBITDA/ton (US$/ton) 363 273 249 243 228 224 Co rus Average HRC Price (US$/ton) 1,151 1,053 981 995 995 985 Premium over HRC Price (US$/ton) 356 363 395 425 425 425 Crude Steel capacity (mn tons) 17.8 17.8 17.8 17.8 17.8 17.8 Volume (mn tons) 14.0 13.1 13.9 14.3 14.7 15.2 EBITDA margin (%) 0.6 1.0 3.7 5.1 5.5 6.1 EBITDA/ton (US$/ton) 7 10 36 50 55 60

Source: Company, Kotak Institutional Equities estimates

Exhibit 6 : Tata Steel - valuation, March fiscal year-end, March 2016E basis (` mn)

EBITDA Multiple Enterprise value E V (Rs mn ) (X) (Rs mn ) (Rs /s h a re ) Tata Steel standalone 132,210 6.0 789,295 813 Tata Steel Europe 49,048 5.0 245,239 253 Tata Steel thailand and other businesses 5,587 5.0 27,935 29 Total Enterprise Value 18 6 ,8 45 1,0 6 2,46 8 1,0 9 4 Consolidated group net debt 759,445 Total borrowings 75 9 ,445 78 2 Arrived market capitalization 303,024 312 Add: Value of investments 78,618 81 Add: CWIP at Kalinganagar 108,750 112 Arrived market capitalization 49 0 ,39 2 505 Target price (Rs) 505

Source: Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 41 Metals & Mining Tata Steel

Exhibit 7: Tata Steel (consolidated), profit model, balance sheet and cash flow model, March fiscal year-ends, 2012-17E (` mn)

20 12 20 13 20 14 20 15 E 20 16 E 20 17E Profit model (Rs mn) Net sales 1,328,997 1,347,115 1,486,136 1,543,020 1,612,279 1,693,879 EBITDA 124,16 8 123,212 16 4,110 18 7,48 5 19 3,8 0 2 215 ,78 1 Other income 15,730 4,792 5,168 6,330 7,266 7,539 Interest (42,501) (39,681) (43,368) (48,569) (50,834) (51,650) Depreciation (45,167) (55,753) (58,412) (61,383) (65,981) (74,660) Profit before tax 5 2,231 32,5 6 9 6 7,49 8 8 3,8 6 2 8 4,25 3 9 7,0 0 9 Extraordinaries 33,619 (73,899) (276) 8,425 - - Taxes (36,365) (32,294) (30,582) (40,007) (37,541) (40,155) Profit after tax 49 ,48 5 (73,6 24) 36 ,6 40 5 2,28 1 46 ,712 5 6 ,8 5 4 Minority interest 1,731 2,145 (699) (120) (84) (59) Share in profit/(loss) of associates 2,681 903 8 280 280 280 Reported net income 5 3,8 9 8 (70 ,5 76 ) 35 ,9 49 5 2,441 46 ,9 0 8 5 7,0 76 Adjusted net income 25 ,321 3,323 36 ,225 46 ,5 43 46 ,9 0 8 5 7,0 76 Fully diluted EPS (Rs) 26 .1 3.4 37.3 47.9 48 .3 5 8 .8

Balance sheet (Rs mn) Equity 430,436 341,722 405,320 448,688 486,504 534,487 Deferred tax liability 24,424 31,185 25,550 28,319 31,689 35,569 Total Borrowings 620,719 683,705 839,037 854,037 854,037 854,037 Current liabilities 385,297 395,393 428,754 435,303 446,080 462,094 Minority interest 10,912 16,694 17,377 17,497 17,581 17,640 Total liabilities 1,471,78 7 1,46 8 ,6 9 9 1,716 ,0 37 1,78 3,8 43 1,8 35 ,8 9 0 1,9 0 3,8 27 Net fixed assets 421,003 549,366 591,581 611,198 731,217 895,556 Capital work in progress 200,397 142,766 268,225 327,225 255,225 131,225 Goodwill 173,546 130,650 157,488 141,722 141,722 141,722 Investments 40,213 32,577 50,935 36,857 37,137 37,417 Cash 108,016 98,597 86,045 84,340 67,908 71,449 Other current assets 528,613 514,744 561,763 582,503 602,683 626,459 Total assets 1,471,78 7 1,46 8 ,6 9 9 1,716 ,0 37 1,78 3,8 43 1,8 35 ,8 9 0 1,9 0 3,8 27

Free cash flow (Rs mn) Operating cash flow excl. working capital 101,736 101,946 144,155 174,439 159,632 179,506 Working capital changes 11,590 31,293 (12,696) (14,190) (9,403) (7,762) Capital expenditure (119,586) (154,715) (164,201) (140,000) (114,000) (115,000) Free cash flow (6 ,26 1) (21,476 ) (32,742) 20 ,249 36 ,228 5 6 ,745

Ra tio s EBITDA margin (%) 9.3 9.1 11.0 12.2 12.0 12.7 EBIT margin (%) 5.9 5.0 7.1 8.2 7.9 8.3 Debt/equity (X) 1.4 2.0 2.1 1.9 1.8 1.6 Net debt/equity (X) 1.2 1.7 1.8 1.7 1.6 1.4 Net debt/EBITDA (X) 4.0 4.7 4.4 4.0 3.9 3.5 RoAE (%) 6.4 0.9 9.7 10.9 10.0 11.2 Ro ACE (%) 5 .3 7.5 6 .0 6 .4 6 .3 6 .7

Source: Company, Kotak Institutional Equities estimates

42 KOTAK INSTITUTIONAL EQUITIES RESEARCH

BUY Apollo Tyres (APTY) Automobiles OCTOBER 16, 2014 UPDATE Coverage view: Attractive Upgrading earnings; retain BUY. We have increased our margin estimates on Price (`): 216 account of recent sharp correction in raw material prices. Also, in our view, the Street’s concerns on leverage, on account of large capex of `60 bn in FY2015-19, are Target price (`): 240 overblown. In our view, leverage levels (net debt to EBITDA) will remain comfortable at BSE-30: 26,349 below 1.5X over the next couple of years. We retain our BUY rating with a revised TP of `240 from `200 earlier (10X FY2016E EPS).

Company data and valuation summary Apollo Tyres Stock data Forecasts/Valuations 2014 2015E 2016E 52-week range (Rs) (high,low) 227-63 EPS (Rs) 21.2 21.6 23.1 Market Cap. (Rs bn) 110.2 EPS growth (%) 79.1 1.8 6.9 Shareholding pattern (%) P/E (X) 10.2 10.0 9.4 Promoters 44.1 Sales (Rs bn) 134.1 147.1 161.8 FIIs 36.8 Net profits (Rs bn) 10.8 11.0 11.8 MFs 3.1 EBITDA (Rs bn) 18.8 20.3 22.0 Price performance (%) 1M 3M 12M EV/EBITDA (X) 6.3 5.9 5.9 Absolute 4.4 25.5 225.5 ROE (%) 27.1 21.6 19.0 Rel. to BSE-30 7.2 19.1 154.6 Div. Yield (%) 0.3 0.4 0.4

Increasing our estimates on account of lower RM prices We have increased our margin estimates for the standalone business led by lower RM price assumptions. Natural rubber (NR) prices have corrected significantly in the last quarter. NR is ~25-28% by weight of a tire and hence every `10 per kg reduction in NR price would increase EBITDA (` per kg) by `2.5-2.8, implying ~130 bps accretion to EBITDA margins on net sales per kg of `213 in 1QFY15 for Apollo, assuming the company is able to hold realizations. Also, other RMs, which are synthetic rubber, carbon black and nylon tire cord fabric, are indirectly linked to crude prices; given the recent correction in crude prices and a stable rupee, we would anticipate that prices for other raw materials would also be lower versus the past few quarters. Hence, tire companies stand to make reasonable savings on the RM cost front, some of which may be retained. As per our channel checks, tire companies have not reduced prices as of now, neither has there been any uptick in the discounting activity. Having said that, it is always difficult to predict margins for tire companies on account of number of variables involved and the volatility in each of them. We have assumed 13%, 12.7% and 12.6% EBITDA margins in FY2015/16/17E versus 12.2%, 12.1% and 11.6% earlier to incorporate benefits of lower RM prices. We are assuming that part of the RM savings will be passed on. Our margin estimates for the Europe business are unchanged (17% for FY2015/16/17E), as in our view, RM savings would be passed on, as was the case in FY2014.

Leverage ratios to remain comfortable despite large impending capex

At our margin projections for the company, net debt to EBITDA ratio will remain below 1.5X despite `60 bn of capex in FY2015-19. We would presume that APTY would need another round of capex in the India business in the next 2-3 years, by which time most of the investments in the current round would start operationalizing and leverage would remain comfortable even in that scenario.

We maintain BUY rating with a target price of `240 We maintain BUY rating on the company with a target price of `240 at 10X FY2016E EPS. In our view, successful commissioning of the new European plant, even though in the distant future as of now, would be a game changer for the company. It would enable the company to achieve a critical mass in Europe (it is a marginal player as of now), which would be very positive in the long term.

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

Exhibit 1: Natural rubber prices have corrected meaningfully Trend in global natural rubber prices, Tokyo (Rs per kg)

Natural rubber price (Rs per kg) Average 220

200

180 Rs150 per kg

160 Rs112 per kg 140

120

100

Jan-12 Nov-12 Jan-13 Jul-13 Sep-13 Nov-13 Jan-14 Jul-14 Sep-14 Mar-12 May-12 Jul-12 Sep-12 Mar-13 May-13 Mar-14 May-14

Source: Bloomberg, Kotak Institutional Equities

Exhibit 2: Prices in India are higher on account of import duties Trend in prices of natural rubber in India (Kottayam)

Natural rubber price (India) Average 220

200 Rs166 per kg 180

160 Rs137 per kg

140

120

100

Jul-12 Jul-13 Jul-14

Jan-12 Jan-13 Jan-14

Sep-12 Sep-13 Sep-14

Nov-13 Nov-12

Mar-12 Mar-13 Mar-14

May-13 May-14 May-12

Source: Bloomberg, Kotak Institutional Equities

Europe capex is within reasonable benchmarks

In our view the capex number for Europe is within reasonable benchmarks of cost of construction of similar plants in developed markets. As per some of the public announcements of global tire companies with regard to their capex spends on new tire plants, it seems that a new car tire plant in developed markets with a capacity in the range of 5-6 mn tires per annum requires US$500-600 mn of investment. In that regard, capex number of EUR500 mn, for a new tire plant with a capacity of 5.5 mn car tires (~125 MT per day) and 0.7 mn truck tires (~125 MT per day), seems within reasonable limits.

44 KOTAK INSTITUTIONAL EQUITIES RESEARCH Apollo Tyres Automobiles

Exhibit 3: Europe capex is within reasonable benchmarks Capex numbers from a few public announcements of global tire companies

Investment in S N o Co mpan y Lo catio n Co un try Capacity Pro d uct Commissioning U S$ mn 1 Sumitomo Fazenda Rio Grande City Brazil 5.3 mn Car and light truck Oct-13 345 2 Goodyear Akron USA 6 mn 2017 500 3 Giti South Carolina USA 5 mn Car and light truck 560

Source: Company, Kotak Institutional Equities

Europe capex is the necessary second step to build a long-term business model

In our view, capex in Europe is a necessary second step to build a long-term business model as:

 The existing plant is already running at near-full utilization level and paucity of additional space in the same facility implies that further brownfield expansion is not possible. Not investing into a new facility would mean forgoing volumes in the long term, which a small company (versus the market) can ill-afford.

 The new plant would be much more efficient versus the existing plant. Employee cost to sales is upwards of 20% in the existing plant whereas it would be much lower (10-12%) in the new plant.

Hence, in our view, capex in Europe is the essential second step that is required to achieve critical scale in that market, which would lead to creation of a business model that would be profitable/sustainable in the long term.

Leverage ratios to remain comfortable despite large capex

We have modeled `52 bn of capex over FY2015-17; `8 bn out of which is maintenance capex for the existing operations. Hence, beyond FY2017, there would be another `16 bn of capex to be incurred in FY2018-19, on account of the current expansion plans. In the most pessimistic scenario, if one assumes that FY2018 EBITDA would be same as FY2017 and incremental debt of `8 bn (incremental capex of `16 bn split equally between the two years) would come additionally on the balance in FY2018, still leverage ratio would remain close to 1.4X. Since, some of the capex would start operationalizing in India and Europe from FY2017 and FY2018 onwards, respectively, leverage ratio should be lower versus what (1.4X) we have projected above.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 45 Automobiles Apollo Tyres

Exhibit 4: Net debt to EBITDA will remain 1.5X despite the large capex Trend in capex and net debt to EBITDA ratio for Apollo, consolidated, March fiscal year-ends

Yearly capex (Rs bn) Net debt to EBITDA

30.0 2.5

25.0 2.0

20.0 1.5 15.0 1.0 10.0

0.5 5.0

0.0 - 2010 2011 2012 2013 2014 2015E 2016E 2017E

Source: Kotak Institutional Equities

Change in estimates

We have assumed 13%, 12.7% and 12.6% EBITDA margins in FY2015/16/17E versus 12.2%, 12.1% and 11.6% earlier to incorporate benefits of lower RM prices. We are assuming that part of the RM savings will be passed on. Our margin estimates for Europe business are unchanged (17% for FY2015/16/17E), as in our view, RM savings would be passed on, as was the case in FY2014. We have also adjusted our tax rate assumptions for the company.

Exhibit 5: Change in estimates for Apollo Tyres, consolidated, March fiscal year-ends (Rs mn)

20 15 E 20 16 E 20 17E N ew O ld Ch an g e (%) N ew O ld Ch an g e (%) N ew O ld Ch an g e (%) Revenues (Rs mn) 146,910 149,749 (1.9) 161,598 164,744 (1.9) 177,788 181,274 (2.0) EBITDA (Rs mn) 20,287 19,921 1.8 21,943 21,708 1.1 23,972 23,281 2.9 PAT (Rs mn) 10,986 10,711 2.5 11,740 11,102 5.4 12,518 11,520 8.0 EPS (Rs) 21.8 21.3 2.5 23.3 22.0 5.4 24.8 22.9 8.0

Source: Kotak Institutional Equities

Assumptions

Exhibit 6: Our assumptions for Apollo Tyres, consolidated, March fiscal year-ends

2011 2012 2013 2014 2015E 2016E 2017E Standalone business Volumes (MT) 303,116 390,382 397,844 403,234 435,493 470,332 507,959 Yoy grow th (%) 29 2 1 8 8 8 Sales 54,905 81,579 85,075 87,117 94,564 104,936 116,452 Yoy grow th (%) 49 4 2 9 11 11 EBITDA 5,335 6,663 8,982 10,989 12,307 13,314 14,641 Yoy grow th (%) 25 35 22 12 8 10 EBITDA (%) 9.7 8.2 10.6 12.6 13.0 12.7 12.6 Europe Sales (Euro mn) 368 427 426 486 535 578 624 Yoy grow th (%) 16 (0) 14 10 8 8 EBITDA (Euro mn) 63 72 75 64 91 98 106 Yoy grow th (%) 14 5 (15) 42 8 8 EBITDA (%) 17.0 16.8 17.7 13.2 17.0 17.0 17.0

Source: Kotak Institutional Equities

46 KOTAK INSTITUTIONAL EQUITIES RESEARCH Apollo Tyres Automobiles

Exhibit 7: Summary financials: Apollo Tyres Profit and loss model, balance sheet and cash flow statement for Apollo Tyres, consolidated, March fiscal year-ends

20 10 20 11 20 12 20 13 20 14E 20 15 E 20 16 E 20 17E Profit model (Rs mn) Net sales 81,207 88,677 121,533 127,946 134,120 146,910 161,598 177,788 EBITDA 11,749 9 ,78 0 11,6 6 1 14,5 6 7 18 ,75 5 20 ,28 7 21,9 43 23,9 72 Other income 214 263 326 944 978 396 233 225 Interest (1,154) (1,852) (2,873) (3,128) (2,838) (1,750) (1,717) (2,392) Depreciation (2,542) (2,719) (3,256) (3,966) (4,109) (4,286) (4,804) (5,113) Profit before tax 8 ,26 6 5 ,471 5 ,8 5 8 8 ,418 12,78 7 14,6 48 15 ,6 5 4 16 ,6 9 1 Tax expense (2,607) (1,063) (1,444) (2,448) (2,269) (3,662) (3,913) (4,173) Exceptional items 874 — 294 169 468 — — — Minority int/assoc. profits (22) (12) 0 PAT 6 ,5 34 4,40 8 4,6 8 7 6 ,126 10 ,9 8 6 10 ,9 8 6 11,740 12,5 18 EPS 13.0 8.7 9.3 12.2 21.8 21.8 23.3 24.8 Balance sheet (Rs mn) Equity 19,678 24,134 28,335 34,009 45,746 56,249 67,473 79,440 Total borrowings 17,072 24,802 28,676 26,459 16,082 13,082 25,082 28,082 Deferred tax liability 2,514 3,162 4,025 4,928 5,241 5,241 5,241 5,241 Current liabilities 15,459 21,131 22,883 19,859 23,269 27,980 30,025 32,277 Total liabilites 5 4,723 73,228 8 3,9 20 8 5 ,25 4 9 0 ,339 10 2,5 5 2 127,8 21 145 ,0 41 Net fixed assets 29,786 38,971 43,544 44,892 45,022 50,736 70,932 82,819 Goodwill 1,175 1,250 1,338 1,436 1,376 1,376 1,376 1,376 Investments 59 112 158 546 637 637 637 637 Cash 3,490 1,909 1,730 3,348 6,541 2,667 3,918 4,149 Other current assets 20,214 30,987 37,150 35,033 36,763 47,136 50,958 56,060 Total assets 5 4,723 73,228 8 3,9 20 8 5 ,25 4 9 0 ,339 10 2,5 5 2 127,8 21 145 ,0 41 Cash flow (Rs mn) Operating cash flow 9,860 7,553 8,511 11,176 12,271 14,876 16,312 17,406 Working capital changes 1,992 (5,192) (3,100) (1,480) 1,302 (5,662) (1,777) (2,849) Caital expenditure (12,177) (10,958) (8,117) (6,037) (1,507) (10,000) (25,000) (17,000) Free cash flow (324) (8 ,5 9 6 ) (2,70 6 ) 3,6 5 9 12,0 6 7 (78 6 ) (10 ,46 6 ) (2,443) Ra tio s EBITDA margin (%) 14.5 11.0 9.6 11.4 14.0 13.8 13.6 13.5 Net debt/equity (X) 0.69 0.95 0.95 0.68 0.21 0.19 0.31 0.30 Book value (Rs/share) 38.7 47.4 55.7 66.8 89.9 110.5 132.6 156.1 RoAE (%) 39.4 20.1 17.9 19.7 27.6 21.5 17.3 17.0 RoACE (%) 22.3 13.2 11.6 12.4 19.7 18.1 15.5 14.0

Source: Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 47

REDUCE Prestige Estates Projects (PEPL) Real Estate OCTOBER 16, 2014 UPDATE Coverage view: Attractive

Operations update – another quarter of strong sales. Prestige reported strong sales Price (`): 223 and collections in 2QFY15. Sales were buoyant with new launches in 2QFY15 and a Target price (`): 240 spillover of new launches from 1QFY15. Collections were better than sales, reflecting BSE-30: 26,349 pre-sales collections and collections from under-construction projects, showcasing Prestige’s brisk construction. Prestige acquired a large project in 2QFY15, but we await management commentary on use of capital. We maintain our REDUCE rating with a March 2016E target price of `240.

Company data and valuation summary Prestige Estates Projects Stock data Forecasts/Valuations 2014 2015E 2016E 52-week range (Rs) (high,low) 270-123 EPS (Rs) 10.4 11.2 15.8 QUICK NUMBERS Market Cap. (Rs bn) 83.7 EPS growth (%) 24.2 8.5 40.3 Shareholding pattern (%) P/E (X) 21.6 19.9 14.2  Prestige launched Promoters 75.0 Sales (Rs bn) 25.5 33.7 48.2 three projects in FIIs 18.0 Net profits (Rs bn) 3.6 4.2 5.9 MFs 5.5 EBITDA (Rs bn) 7.7 9.5 12.6 2QFY15 Price performance (%) 1M 3M 12M EV/EBITDA (X) 14.3 11.8 9.2 Absolute (4.0) (8.1) 63.1 ROE (%) 12.7 12.1 14.0  Prestige’s sales Rel. to BSE-30 (1.4) (12.8) 27.6 Div. Yield (%) 0.7 0.5 0.5 clocked `12.9 bn in 2QFY15 Three new launches – high sales momentum maintained in 2QFY15  Prestige collected Prestige had three launches in Bangalore, out of which two were high-volume launches, one in `8 bn in 2QFY15 South Bangalore and one in North Bangalore. This resulted in Prestige garnering residential sales of 2.3 mn sq. ft in 2QFY15 (Prestige’s share was 2.2 mn sq. ft). We estimate around 45% of the sales were from the new launches in 2QFY15 and one big launch in 1QFY15. Prestige also sold a large commercial building in Outer Ring Road (ORR) in Bangalore for over `1.5 bn.

Collections ramp up faster with more area under construction

Prestige’s collections are improving faster than its sales. Prestige collected `15.7 bn in 1HFY15, half its FY2015 guidance of `28.5-30 bn (KIE estimate: `34 bn). With more projects to start construction in 2HFY15, we believe Prestige may outperform its FY2015 collections guidance.

What could be in store for the 2QFY15 results?

Prestige acquired a `3.5 bn property in Bangalore and raised equity of `6.2 bn in 2QFY15. We await announcements regarding business development in 2QFY15, especially in new markets. We estimate total construction expenditure in FY2015 to be about `26 bn (about `21 bn in the build-and-sell business). With new capital, we expect FY2015 to be a year of strong business development. Absolute debt may still rise as Prestige will borrow to construct annuity assets.

Financials – revenue CAGR of 27%, net income CAGR 16% over FY2014-17E

Prestige is well past the half-way mark in all parameters of its FY2015 guidance. We expect launches in different markets in 2HFY15 to help Prestige to maintain its sales momentum. Strong pre-sales, a strong construction focus and a low base will result in healthy top-line growth, but margins may drop due to the product mix and stagnant blended-average pricing. At its CMP, the stock trades at 2X FY2016E BV. We maintain our REDUCE rating with a March 2016E target price of `240.

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

Exhibit 1: Prestige's revenue will grow at 27% CAGR over FY2014-17E Prestige - profit model, balance sheet, cash flow model, March fiscal year-ends, 2013-17E (` mn)

20 13 20 14 20 15 E 20 16 E 20 17E Total revenues 19 ,476 25 ,45 9 33,70 6 48 ,227 5 2,79 0 Land and construction costs (11,460) (14,701) (20,738) (31,714) (34,879) Employee costs (1,444) (1,610) (1,803) (2,019) (2,262) SG&A costs (723) (1,464) (1,684) (1,937) (2,227) EBITDA 5 ,8 49 7,6 8 4 9 ,48 1 12,5 5 8 13,422 Other income 636 975 550 580 565 Interest (1,489) (2,290) (3,132) (3,411) (3,606) Depreciation (682) (893) (1,187) (1,596) (1,952) Pre-tax profits 4,313 5 ,476 5 ,711 8 ,131 8 ,429 Current tax (1,362) (1,828) (1,770) (2,521) (2,613) Deferred tax 9 48 — — — Net income 2,9 6 0 3,6 9 5 3,9 41 5 ,6 10 5 ,8 16 Minority interest (48) (72) (127) (167) (732) Profit from associates (33) (30) 398 464 463 Adjusted net income 2,8 79 3,5 9 3 4,211 5 ,9 0 8 5 ,5 47 E P S (Rs ) Primary 8.7 10.3 11.5 15.8 14.8 Fully diluted 8.2 10.3 11.2 15.8 14.8 D P S (Rs ) 1.2 1.5 1.2 1.2 1.2 Shares outstanding (mn) Year-end 350 350 375 375 375 Weighted average 332 350 366 375 375 Fully diluted 350 350 375 375 375 Cash flow per share (Rs) Primary 10.8 12.8 14.7 20.0 20.0 Fully diluted 10.3 12.8 14.4 20.0 20.0 Margins (%) EBITDA 30 30 28 26 25 Adjusted net income 15 14 12 12 11 Cash tax rate 32 33 31 31 31 Effective tax rate 31 33 31 31 31 Gro w th (%) Total revenue 85 31 32 43 9 Net adjusted income 249 25 17 40 (6)

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 49

NEUTRAL Telecom

India OCTOBER 16, 2014 UPDATE BSE-30: 26,349

Spectrum chronicles: TRAI recommendations progressive; positive if accepted. The Telecom Regulatory Authority of India (TRAI) has issued recommendations on spectrum reserve prices and other issues around the next round of spectrum auctions involving (mostly) renewal spectrum in 18 circles. We find the recommendations progressive in nature, given that TRAI highlighted the import of these auctions and suggested the government look beyond myopic (short-term) fiscal imperatives.

The big picture – TRAI takes note of the import of the upcoming auctions TRAI has issued recommendations on spectrum valuation/pricing and other aspects around the next round of spectrum auctions in India. Before we get into specifics of the recommendations, a few big-picture observations -

 TRAI has emphasized strongly the massive import of the next round of auctions from a sector standpoint; the nature of the upcoming auctions, involving primarily renewal spectrum of the incumbents in as many as 18 circles, makes it critical to consider the potential impact on the long-term health of the sector as well as potential risks to service continuity for a large number of customers.

 TRAI has strongly recommended making additional spectrum (over and above the renewal spectrum and unsold 1800 MHz spectrum) available for the auction; it recommends extending the scope of the auction to involve 800 MHz and 2100 MHz spectrum, as well. In essence, TRAI is recommending higher supply of spectrum.

 TRAI notes the opportunity available to a non-serious bidder to push up auction prices for incumbents facing renewal given that they are secure in their knowledge that incumbents need to renew their spectrum for business continuity reasons. We have a specific suggestion on this aspect – the DOT should increase the earnest money deposit (EMD) requirement for the forthcoming auctions significantly (from a fraction to a multiple of reserve prices) to reduce the likelihood of frivolous bidding. EMD requirements are part of auction design and hence outside the TRAI’s purview.

 TRAI notes that if the auctions were to be conducted without making more spectrum available, the only possible outcomes (incumbents lose their renewal spectrum or win it back at significantly high prices) per the authority are not only going to be detrimental to the financial health of the incumbents but would also have serious implications for wireless customers.

Specifics – intent to prevent an Armageddon quite clear

(1) Valuation of 1800 MHz spectrum done afresh; 1800 pan-India reserve prices are about 10% higher than February 2014 auction clearing price as a result, (2) 900 reserve prices on a pan-India basis are 1.85X new 1800 reserve prices and in line with our expectation on a pan-India basis, (3)

900 reserve prices are lower than what we have been modeling in a few large circles, providing some cushion to our payout estimates, and (4) minimum bid quantum has been set at 3.6 MHz in circles with over 10 MHz of 900 spectrum up for auction and 2.4 MHz for circles with less than 10 MHz; this is a critical recommendation, in our view as this opens up the possibility of a non-incumbent winning some 900 MHz spectrum without one of the incumbents necessarily having to give up 900 MHz spectrum completely. We note that these are just recommendations; the final auction rules may look different.

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

List of key recommendations

 Make more spectrum available for the auction. More specifically, TRAI suggests

. Taking back 1.2 MHz of 900 band spectrum from BSNL in all the 18 circles where incumbents’ licenses will expire in 2015-16, with the exception of Punjab (which has a higher quantum of 900 spectrum coming up for renewal than other circles). In lieu, BSNL should be assigned 1.2 MHz of 1800 band spectrum in circles where its current 1800 band holding is less than 3.8 MHz. We view this as an extremely progressive suggestion given the meaningfully sub-par utilization of spectrum by BSNL.

. Taking a completely fresh look at the possibility of implementation of the E-GSM band. We note that this involves refarming some spectrum in the 850 band (currently with the defense sector) for use as extended GSM band.

. Not letting any unused spectrum in the defense band to remain idle. We note that 20 MHz out of the 75 MHz spectrum available in the 1800 band is classified as defense band spectrum. The defense is not using the entire 20 MHz spectrum in several circles and TRAI recommends that the unused spectrum be auctioned for commercial use.

. Making the entire 60 MHz spectrum in the 2100 band available for commercial use. We note that out of this 60 MHz, only 20-25 MHz in different circles have been auctioned to wireless operators. 2100 band spectrum is being used for 3G networks, we note.

. Adopting APT700 (one of the band plans for using 700 MHz spectrum) and laying out a defined roadmap for auction of 700 band spectrum.

 Spectrum should be put on auction in block sizes of 0.2 MHz in both 900 and 1800 bands. The minimum bid requirement (for all operators) in the 900 band should be 3.6 MHz in circles with over 10 MHz 900 band spectrum being auctioned and 2.4 MHz in circles with less than 10 MHz being auctioned. This is the most critical recommendation and would ease pressure on incumbents materially, if accepted by the DOT. The minimum bid requirement to be 0.6 MHz in the 1800 band.

 Fresh valuation of 1800 as well as 900 band spectrum, except in Delhi, Mumbai, Kolkata and J&K, where no 900 spectrum is coming up for renewal in the next auction. Exhibits 1 and 2 depict the recommended reserve prices for 900 MHz and 1800 Mhz bands, respectively.

 Most important, TRAI has recommended that (1) the forthcoming auction should be scheduled only after issues around making additional spectrum available are resolved, and (2) auction in 800, 900, 1800, and 2100 MHz bands be conducted simultaneously.

Interesting quotes from the recommendation paper

“…two crucial facts are – (1) the supply of spectrum is constrained; and (2) the auction is unusual in that licenses are expiring and this knowledge is a priori known to all TSPs (telecom service providers), enabling strategic decision-making on the latters’ part… the short supply of spectrum is but one dimension of the problem. The other is that the incumbent operators would be willing to pay huge sums to retain their spectrum so as to protect their investments made in the LSA (local service area or circle) and ensure continuity of business. And, all industrial rivals know this; which is why even a non-serious bidder is potentially in a position to push up the final auction price”

“…to sum up, there is a very real risk that bidding could lead to an escalation of auction prices far beyond any reasonable value… new entrants can always artificially raise bids in excess of any fair value with the intent to force existing operators to buy spectrum at unrealistic prices”

KOTAK INSTITUTIONAL EQUITIES RESEARCH 51 India Telecom

“…the economic value of continuity of service has been seen by (many) Governments to outweigh any potential benefit of using auctions to determine the economic value of spectrum”

“…the short-term benefit arising from high bids likely to be generated if supply constraint is allowed to fester in the forthcoming auction ought to be viewed in a larger context. The TSPs who fail to win spectrum are likely to be left with idle investments in the LSA; and these may well become substantial non-performing assets of the banking sector. Banks and financial institutions may bear the initial costs of such myopic fiscal imperatives, but in the end these costs may devolve on the Government and the economy”

“…the Authority would advise caution in going ahead with the forthcoming auction without resolving the spectrum constraints”

Overall take – qualitative tone of the recommendations and minimum bid recommendation key positives; reserve price recommendations broadly in line with expectations

We once again note that these are only recommendations from TRAI. What would eventually matter is what the DOT decides as far as auction design and auction rules are concerned. We find TRAI’s recommendations encouraging and there is little negative in so far as the recommendations are concerned. The TRAI highlights potential risks the incumbents face going into these auctions. However, these are not new risks; on the positive side in fact, TRAI has emphasized the need to mitigate these risks to the extent possible.

Lastly, even as the focus on the likely auction payout figures is understandable, we would urge not ignoring the secondary level implications of the same. Two key aspects here – (1) we are in the middle of an important ‘spectrum price discovery’ phase in India; what needs to be assessed at any given point is whether the industry can pass on the increased input costs to subscribers over a period of time or whether competition has forced the industry to value-destructive input cost levels (3G auctions a case in point), and (2) even as the initial impact of higher spectrum prices is on incumbents, the high spectrum prices have serious ‘survival-level’ long-term implications for challengers; on an immediate basis, higher future spectrum payouts visible today make these challengers even less attractive M&A targets.

We are positive on both Bharti and Idea.

52 KOTAK INSTITUTIONAL EQUITIES RESEARCH Telecom India

Exhibit 1: 900 MHz - recommended reserve prices for the next round of auctions

Current KIE Recommended 900 Recommended 1800 assumptions for 900 MHz reserve price per MHz reserve price per 900 over 1800 = A/B MHz spectrum per Circle MHz (Rs mn) - A MHz (Rs mn) - B (X) MHz (Rs mn) - C A/C (X) Andhra Pradesh 2,710 1,630 1.66 3,260 0.83 Assam 580 360 1.61 722 0.80 Bihar 1,230 620 1.98 862 1.43 Delhi (a) 7,410 3,640 2.04 7,410 1.00 Gujarat 3,390 2,380 1.42 4,756 0.71 Haryana 640 320 2.00 540 1.19 Himachal Pradesh 190 90 2.11 120 1.58 J&K (b) 500 250 2.00 122 4.10 Karnataka 2,860 1,550 1.85 3,100 0.92 Kerala 1,500 750 2.00 1,040 1.44 Kolkata (a) 1,946 730 2.67 1,946 1.00 Madhya Pradesh 1,380 690 2.00 1,008 1.37 Maharashtra 4,200 2,900 1.45 5,807 0.72 Mumbai (a) 5,631 2,720 2.07 5,631 1.00 North East 210 110 1.91 140 1.50 Orissa 470 230 2.04 320 1.47 Punjab 1,410 710 1.99 1,080 1.31 Rajasthan 1,720 600 2.87 520 3.31 Tamilnadu 3,380 2,080 1.63 4,160 0.81 UP east 1,950 970 2.01 1,280 1.52 UP west 1,520 950 1.60 1,899 0.80 West Bengal 700 350 2.00 492 1.42 T o ta l 45 ,5 27 24,6 30 1.8 5 46 ,215 0 .9 9

Notes: (a) 900 renewal in Delhi, Mumbai and Kolkata over in Feb 2014 auctions. 900 prices reflect auction discovered prices. (b) No renewal in J&K in 2015-16. We have used 2X 1800 to compute 900 price.

Source: TRAI, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 53 India Telecom

Exhibit 2: 1800 MHz - recommended reserve prices for the next round of auctions

Recommended Clearing price per reserve price per MHz MHz, Feb 2014 auction Circle (Rs mn) - A (Rs mn) - B A/B (X) Andhra Pradesh 1,630 1,630 1.00 Assam 360 361 1.00 Bihar 620 431 1.44 Delhi 3,640 3,640 1.00 Gujarat 2,380 2,378 1.00 Haryana 320 270 1.19 Himachal Pradesh 90 60 1.50 J&K 250 61 4.10 Karnataka 1,550 1,550 1.00 Kerala 750 520 1.44 Kolkata 730 730 1.00 Madhya Pradesh 690 504 1.37 Maharashtra 2,900 2,904 1.00 Mumbai 2,720 2,720 1.00 North East 110 70 1.57 Orissa 230 160 1.44 Punjab 710 540 1.31 Rajasthan 600 260 2.31 Tamilnadu 2,080 2,080 1.00 UP east 970 640 1.52 UP west 950 950 1.00 West Bengal 350 246 1.42 T o ta l 24,6 30 22,70 4 1.0 8

Source: TRAI, Kotak Institutional Equities

54 KOTAK INSTITUTIONAL EQUITIES RESEARCH Telecom India

Exhibit 3: Spectrum up for renewal - circle view (some unsold spectrum in 1800 band will be auctioned outside this)

Spectrum up for renewal (MHz) Circle O pe ra to r Expiring in 900 18 0 0

Maharashtra Idea Dec-15 7.8 2.0 Vodafone Dec-15 6.2 —

Gujarat Idea Dec-15 6.2 — Vodafone Dec-15 7.8 2.0

Andhra Pradesh Bharti Dec-15 7.8 2.2 Idea Dec-15 6.2 1.8

Karnataka Bharti Feb-16 7.8 2.2 Idea Apr-16 6.2 — Tamilnadu Vodafone Dec-15 6.2 1.0

Kerala Idea Dec-15 6.2 1.8 Vodafone Dec-15 6.2 —

Punjab Bharti Dec-15 7.8 — Idea Apr-16 7.8 — Haryana Idea Dec-15 6.2 — Vodafone Dec-15 6.2 —

UP West Idea Dec-15 6.2 1.8 UP East Vodafone Dec-15 6.2 2.0

Rajasthan Vodafone Dec-15 6.2 — Bharti Apr-16 6.2 2.0 Madhya Pradesh Idea Dec-15 6.2 1.8 RCOM Dec-15 6.2 — West Bengal RCOM Dec-15 4.4 1.8 Himachal PradeshBharti Dec-15 6.2 — RCOM Dec-15 6.2 — Bihar RCOM Dec-15 6.2 1.8 Orissa RCOM Dec-15 6.2 — Assam RCOM Dec-15 6.2 — North East Bharti Dec-15 4.4 1.8 RCOM Dec-15 4.4 1.8

Source: TRAI, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 55 India Telecom

Exhibit 4: Spectrum up for renewal - player view (some unsold spectrum in 1800 band will be auctioned outside this)

18 0 0 MH z Spectrum up for s pe ctrum renewal (MHz) Contribution acquired in Feb O pe rto r Circle 900 18 0 0 to GR (%) 20 14 (MH z) Bharti Andhra Pradesh 7.8 2.2 9.7 8.8 Karnataka 7.8 2.2 10.7 8.8 Punjab 7.8 — 4.2 8.2 Rajasthan 6.2 2.0 6.5 8.2 Himachal Pradesh 6.2 — 1.0 10.2 North East 4.4 1.8 1.6 7.0 Bharti total 40 .2 8 .2 33.7 Idea Maharashtra 7.8 2.0 15.2 9.0 Gujarat 6.2 — 6.6 1.6 Andhra Pradesh 6.2 1.8 9.8 6.0 Karnataka 6.2 — 4.8 5.0 Kerala 6.2 1.8 9.5 10.0 Punjab 7.8 — 4.9 8.0 Haryana 6.2 — 3.3 6.0 UP West 6.2 1.8 8.0 — Madhya Pradesh 6.2 1.8 10.4 7.0 Id e a to ta l 5 9 .0 9 .2 72.4 Vodafone Maharashtra 6.2 — 9.2 — Gujarat 7.8 2.0 9.7 4.4 Tamilnadu 6.2 1.0 8.4 — Kerala 6.2 — 4.5 7.0 Haryana 6.2 — 2.7 2.4 UP East 6.2 2.0 7.6 4.0 Rajasthan 6.2 — 4.9 0.8 Vodafone total 45 .0 5 .0 47.0 RCOM (a) Madhya Pradesh 6.2 — 9.0 — West Bengal 4.4 1.8 4.6 — Himachal Pradesh 6.2 — 1.4 — Bihar 6.2 1.8 5.5 — Orissa 6.2 — 2.9 — Assam 6.2 — 3.3 — North East 4.4 1.8 1.0 — RCO M to ta l 39 .8 5 .4 27.7

Notes: (a) Only GSM revenues for RCOM.

Source: TRAI, Kotak Institutional Equities

56 KOTAK INSTITUTIONAL EQUITIES RESEARCH

INDIA Economy Inflation OCTOBER 16, 2014 UPDATE BSE-30: 26,349

Disinflationary trends continue. The sharp deceleration in September WPI inflation was a combination of (1) favorable base effect, (2) normalization of vegetable prices, and (3) softer commodity prices in general. Further, the softening in underlying sequential momentum, particularly of core inflation reflecting weak pricing power, also led to the deceleration. While this secular fall is encouraging, the RBI is likely to remain focused on the CPI inflation target of 6% by January 2016. The RBI would likely wait for the base effects to play out before any critical assessment is made on the outlook.

WPI inflation softens across the board QUICK NUMBERS Headline WPI inflation continued to trend down in September, falling sharply to 2.38%—the lowest print in nearly five years. While the softening was partly supported by favorable base  September WPI effect, moderation across almost all the sub-components was visible. Primary articles inflation inflation has plummeted to 2.2% in September from its peak of 8.6% in May this year. The food decelerates to component also decelerated to 3.5%, with a sharper sequential contraction of 1.4% mom, 2.38% than the 0.3% mom contraction seen in CPI food (ex-beverages and tobacco). This movement in WPI inflation was helped by comparatively softer monthly increase in vegetables and some  Core WPI inflation protein goods, than in CPI. Vegetable WPI inflation, in particular, contracted 13% mom as eases further to against ~2% contraction in CPI. 2.81%

Falling energy price inflation reflects softer global crude prices  RBI likely to remain on an extended Domestic fuel products prices fell sequentially on the back of lower India crude basket (4.7% pause fall mom in September). This helped energy inflation ease to 1.3%— significant correction from ~10% average inflation seen in 1QFY14 and contributing only 0.2 ppt to WPI inflation. With crude prices falling further and steady USD/INR, energy inflation could further ease in October. Over September, the India crude basket has eased ~7% till October 14.

Core inflation remains benign

Core inflation continued to moderate sharply, printing 2.8% in September after 3.45% in August, reflecting muted global commodity prices. More encouragingly, the quarterly momentum has remained benign, and is currently tracking at ~1.4% qoq SAAR (see Exhibit 2). We expect core WPI inflation trajectory to soften further from current levels, averaging close to 3.1% in FY2015. The expectation of relatively soft commodity prices amid mild INR depreciation underpins this expected movement in core WPI trajectory.

Extended pause on monetary policy front remains our base case

Consistent decline in inflation matrices hints that the disinflationary trends are underway. The recent softer-than-expected WPI and CPI inflations prints have provided downside bias to the inflation trajectories. We now expect WPI inflation and CPI inflation to average 4.2% and 7.1% respectively in FY2015. However, the RBI is unlikely to ease prematurely on the back of these better-than-expected inflation prints, and would wait to gauge inflation performance once the base effect normalizes. The RBI’s focus has turned to the 6% target by January 2016. The potential impact of changing global dynamics, especially as the US shifts its monetary policy stance, needs to be seen.

For Private Circulation Only. India Economy

Exhibit 1: Headline WPI inflation decelerates in August Trends in headline WPI inflation (%)

WPI inflation 12

6 4.2 4 2.4 2

(2)

Jul-08 Jul-13

Jan-11

Jun-11

Oct-09 Oct-14

Feb-08 Feb-13

Apr-12 Sep-07 Sep-12

Dec-08 Dec-13

Nov-11

Mar-10 Mar-15

Aug-10

May-14 May-09

Notes: (a) We do not assume any change in diesel prices till March 2015.

Source: CEIC, Kotak Economic Research estimates

Exhibit 2: Core WPI inflation sequential momentum has been tamed sharply Trends in core WPI inflation (3M/3M SAAR, %)

Core WPI inflation (3M/3M SAAR, %) 18 16 14 12 10 8 6 4 2

Jul-12 Jul-13 Jul-14 Jul-11

Jan-12 Jan-13 Jan-14 Jan-11

Sep-11 Sep-12 Sep-13 Sep-14

Nov-11 Nov-12 Nov-13

Mar-12 Mar-13 Mar-14 Mar-11

May-12 May-13 May-14 May-11

Source: CEIC, Kotak Economic Research

58 KOTAK ECONOMIC RESEARCH

September 2014: Results calendar

59 Mon Tue Wed Thu Fri Sat Sun 13-Oct 14-Oct 15-Oct 16-Oct 17-Oct 18-Oct 19-Oct INDUSINDBK BAJAJ-AUTO BAJAJHLDNG BAJAJCORP AXISBANK GHCL MAHSCOOTER BAJAJFINSV CYIENT CMC CRISIL LICHSGFIN RELIANCE IND BAJFINANCE GSFC CROMPGREAV EVERESTIND OBEROIRLTY SINTEX STERLINH HINDUSTAN MEDIA VENTURES DBCORP HCLTECH ULTRACEMCO TTKPRESTIG MINDTREE FEDERALBNK HTMEDIA UNICHEMLAB NIITTECH HEROMOTOCO LAKSHMI VILAS BANK TATASPONGE KIRLOSIND MAHLIFE RALLIS PERSISTENT TCS PRISM CEMENT RSSOFTWARE ZEEL 20-Oct 21-Oct 22-Oct 23-Oct 24-Oct 25-Oct 26-Oct APLLTD BIOCON ASIANPAINT EXIDE INDUSTRIES CAIRN HAVELLS HINDUSTAN ZINC DHFL HDFC HINDZINC GNFC KOTAKBANK JINDALSAW HDFCBANK L&T FINANCE JUSTDIAL JSWSTEEL M&M FINANCIAL SERVICES MAHINDUGIN PNB WIPRO SKSMICRO SOUTHBANK SRTRANSFIN UPL UNITDSPR WELCORP WABCOINDIA ZEE LEARN LTD ZEEMEDIA 27-Oct 28-Oct 29-Oct 30-Oct 31-Oct 1-Nov 2-Nov LAXMIMACH ABB DRREDDY AMBUJACEM M&M GODREJ CONSUMERS

INGVYSYABK GRASIM CHOLAFIN TCI COROMANDEL Daily Summary India LUPIN MPHASIS ICICIBANK UNIONBANK NESTLEIND IDFC RANBAXY NHPC OILCOUNTUB

3-Nov 4-Nov 5-Nov 6-Nov 7-Nov 8-Nov 9-Nov DABUR BERGEPAINT BATAINDIA GLAXOSMITHKLINE PHARMA RELIGARE PIDILITIND THERMAX KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK 10-Nov 11-Nov 12-Nov 13-Nov 14-Nov 15-Nov 16-Nov SHREECEM TIMEX-$ MOTHERSUMI

GODREJIND 2014 October 16,

Source: BSE, Kotak Institutional Equities

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

India Daily Summary Daily Summary India Target O/S ADVT- Price (Rs) price Upside Mkt cap. shares EPS (Rs) EPS grow th (%) PER (X) EV/EBITDA (X) Price/BV (X) Dividend yield (%) RoE (%) 3mo

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Company Rating 14-Oct-14 (Rs) (%) (Rs mn) (US$ mn) (mn) 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E (US$ mn) Automobiles Amara Raja Batteries SELL 582 550 (5.5) 99,430 1,620 171 21.5 24.4 29.9 28.2 13.6 22.5 27.1 23.8 19.5 17.4 14.4 12.0 7.3 5.9 4.8 0.6 0.8 1.0 30.3 27.4 27.2 3.1 Apollo Tyres BUY 216 200 (7.6) 1,09,110 1,778 504 19.9 21.2 22.0 63.7 6.8 3.7 10.9 10.2 9.8 6.3 6.0 6.0 2.1 1.8 1.5 0.3 0.4 0.4 26.4 21.1 18.1 20.1 Ashok Leyland SELL 45 34 (23.8) 1,27,015 2,069 2,848 (1.8) (0.5) 1.2 (430.4) 72.8 350.2 (24.9) (91.5) 36.6 102.8 25.8 13.9 2.6 2.4 2.3 - - 1.2 0.8 (3.7) 8.5 10.6 Bajaj Auto ADD 2,412 2,550 5.7 6,98,033 11,373 289 112.1 120.8 139.9 6.6 7.8 15.8 21.5 20.0 17.2 15.5 15.5 13.5 7.2 6.0 5.1 2.1 2.0 2.3 36.5 32.7 31.9 13.3 Bharat Forge SELL 776 620 (20.1) 1,84,157 3,000 237 22.0 27.7 34.8 110.7 26.1 25.6 35.3 28.0 22.3 19.9 14.3 11.9 6.9 5.8 4.8 0.4 0.7 0.8 21.0 22.4 23.4 14.0 Eicher Motors SELL 11,212 8,300 (26.0) 3,03,162 4,939 27 145.7 265.7 396.7 21.3 82.4 49.3 77.0 42.2 28.3 40.5 23.6 15.6 14.7 11.3 8.3 0.3 0.2 0.3 19.2 28.1 31.9 9.3 Exide Industries REDUCE 170 160 (5.9) 1,44,543 2,355 850 5.7 7.2 8.7 (6.8) 25.3 21.6 29.7 23.7 19.5 17.5 14.7 12.4 3.9 3.5 3.2 1.4 1.5 1.5 13.6 15.6 17.1 8.7 Hero Motocorp ADD 2,852 3,200 12.2 5,69,634 9,281 200 105.6 134.8 189.5 (0.4) 27.7 40.5 27.0 21.2 15.1 19.4 14.9 10.2 10.3 8.6 7.0 2.3 2.4 3.3 39.7 44.6 51.6 20.4

Mahindra & Mahindra REDUCE 1,274 1,310 2.8 7,16,144 11,668 562 68.5 58.9 65.6 8.7 (14.1) 11.4 18.6 21.6 19.4 14.0 14.4 13.1 4.0 3.8 3.5 1.5 0.7 1.0 23.2 9.4 12.6 28.6 Maruti Suzuki BUY 2,962 3,400 14.8 8,94,791 14,578 302 92.8 114.4 183.2 17.1 23.4 60.1 31.9 25.9 16.2 19.2 15.7 9.8 4.1 3.6 3.0 0.4 0.4 0.7 13.8 15.0 20.5 15.9 Motherson Sumi Systems ADD 377 375 (0.5) 3,32,514 5,417 882 8.7 11.2 18.0 72.1 29.6 60.5 43.5 33.5 20.9 13.8 11.3 7.1 11.2 8.2 5.5 0.7 0.9 1.4 34.2 27.0 30.3 14.6 Tata Motors BUY 488 590 20.9 15,70,309 25,584 3,218 46.5 48.1 62.0 51.4 3.4 28.8 10.5 10.1 7.9 5.4 4.8 4.1 2.4 1.9 1.5 0.4 - - 28.7 21.1 21.9 52.1

WABCO India ADD 3,750 4,000 6.7 71,129 1,159 19 61.9 77.7 133.0 (10.2) 25.4 71.2 60.6 48.3 28.2 41.9 30.4 18.0 9.4 8.1 6.7 0.1 0.3 0.9 16.7 18.1 26.1 0.5 -

Automobiles Attractive 58,19,970 94,821 24.4 9.0 32.0 19.3 17.7 13.4 10.3 8.9 7.1 4.0 3.4 2.8 1.0 0.8 1.1 21.0 19.2 21.0 210.7 2014 October 16, Banks/Financial Institutions Axis Bank ADD 397 430 8.3 9,32,876 15,199 2,349 26.5 29.7 34.5 19.6 12.3 16.1 15.0 13.4 11.5 — — — 2.5 2.2 1.9 1.0 1.3 1.5 17.4 17.0 17.2 26.8 Bajaj Finserv BUY 1,105 1,175 6.3 1,75,844 2,865 159 96.4 102.3 111.1 (6.6) 6.1 8.6 11.5 10.8 10.0 — — — 1.9 1.8 1.5 1.2 1.2 1.2 17.9 17.0 16.3 1.6 Bank of Baroda ADD 872 1,050 20.5 3,75,334 6,115 431 105.4 118.2 138.3 (0.6) 12.1 17.0 8.3 7.4 6.3 — — — 1.2 1.1 1.0 2.5 2.8 3.2 13.8 13.8 14.5 20.9 Bank of India ADD 256 320 25.2 1,64,319 2,677 643 42.4 61.9 66.7 (7.9) 45.7 7.8 6.0 4.1 3.8 — — — 0.8 0.7 0.6 2.0 2.8 3.1 11.2 14.3 13.6 17.1 Cholamandalam ADD 455 420 (7.6) 65,099 1,061 143 25.6 29.8 36.5 19.7 16.2 22.8 17.7 15.3 12.4 — — — 3.1 2.7 2.0 0.9 1.0 1.4 17.3 17.5 18.3 0.2 City Union Bank ADD 84 90 7.2 49,475 806 589 6.4 7.0 8.1 (5.8) 9.2 16.4 13.1 12.0 10.3 — — — 2.6 1.9 1.6 1.1 1.3 1.5 18.9 17.4 16.5 1.0 DCB Bank BUY 84 100 19.0 21,027 343 250 6.0 6.9 7.9 48.2 13.5 15.1 13.9 12.2 10.6 — — — 2.0 1.8 1.5 — — — 14.8 14.5 14.4 1.5 Federal Bank BUY 139 145 4.3 1,18,931 1,938 855 9.8 12.2 14.7 0.1 24.6 19.9 14.2 11.4 9.5 — — — 1.8 1.6 1.4 1.4 1.8 2.1 12.6 14.2 15.2 9.7 HDFC ADD 1,004 1,060 5.6 15,66,820 25,527 1,561 34.9 40.8 47.4 11.3 16.8 16.3 28.8 24.6 21.2 — — — 5.6 5.0 4.5 1.4 1.7 1.9 20.6 21.0 22.8 48.0 HDFC Bank REDUCE 868 800 (7.9) 20,83,216 33,940 2,399 35.3 42.9 51.1 25.0 21.5 18.9 24.6 20.2 17.0 — — — 4.9 4.1 3.5 0.8 1.0 1.1 21.3 21.7 21.8 26.8 ICICI Bank BUY 1,478 1,660 12.3 17,07,214 27,814 1,155 84.9 92.5 107.0 17.7 8.9 15.7 17.4 16.0 13.8 — — — 2.4 2.2 2.0 1.6 1.9 2.2 14.0 13.9 14.7 65.1 IIFL Holdings BUY 150 175 16.9 44,326 722 296 9.4 13.0 16.1 1.6 38.4 24.2 16.0 11.5 9.3 — — — 2.0 1.8 1.6 2.0 2.2 2.8 14.0 17.2 18.8 0.7

IndusInd Bank ADD 650 680 4.7 3,41,535 5,564 526 26.8 32.4 38.1 32.0 21.0 17.6 24.3 20.0 17.0 — — — 4.0 3.4 2.9 0.5 0.7 0.8 18.0 18.5 18.3 8.2 ING Vysya Bank BUY 620 720 16.1 1,17,131 1,908 189 34.8 42.3 51.6 (12.0) 21.4 22.1 17.8 14.7 12.0 — — — 1.7 1.6 1.5 1.0 1.2 1.4 11.4 11.0 12.2 1.5 J&K Bank REDUCE 132 140 6.3 63,888 1,041 485 24.4 21.0 21.7 12.1 (13.7) 3.3 5.4 6.3 6.1 — — — 1.1 1.1 0.9 3.8 3.3 3.4 22.3 16.7 15.3 2.9 Karur Vysya Bank BUY 533 580 8.8 64,257 1,047 121 40.1 54.0 66.7 (21.9) 34.8 23.5 13.3 9.9 8.0 — — — 2.0 1.6 1.3 2.2 2.5 3.1 13.4 16.8 17.1 1.2 LIC Housing Finance BUY 334 375 12.4 1,68,401 2,744 505 26.1 30.5 35.2 28.8 16.7 15.7 12.8 10.9 9.5 — — — 2.3 2.0 1.7 1.3 1.6 1.8 18.8 18.9 18.8 14.5 L&T Finance Holdings SELL 66 60 (8.8) 1,13,074 1,842 1,718 3.5 5.8 5.4 (18.5) 68.9 (8.3) 19.0 11.3 12.3 — — — 1.9 2.0 1.8 1.1 2.4 1.3 10.5 18.3 15.2 4.8 Magma Fincorp BUY 118 150 27.6 22,335 364 190 7.2 9.4 10.9 15.6 30.9 16.6 16.4 12.5 10.8 — — — 1.5 1.4 1.2 1.0 1.3 1.5 9.7 11.1 12.2 0.5 Mahindra & Mahindra Financial SELL 280 240 (14.3) 1,57,787 2,571 564 15.7 16.9 20.7 0.4 7.3 22.7 17.8 16.6 13.5 — — — 3.2 2.8 2.4 1.4 1.4 1.7 18.6 17.5 18.8 7.4 Muthoot Finance BUY 189 250 32.6 74,866 1,220 397 21.0 20.3 23.7 (22.3) (3.1) 16.4 9.0 9.3 8.0 — — — 1.8 1.4 1.3 3.0 3.2 3.8 19.0 17.1 17.1 1.4 Oriental Bank of Commerce ADD 241 330 36.8 72,338 1,179 300 38.0 48.9 56.4 (16.5) 28.7 15.3 6.3 4.9 4.3 — — — 0.7 0.7 0.6 3.2 4.1 4.7 8.7 10.5 11.2 8.3 PFC ADD 249 330 32.4 3,28,909 5,359 1,319 41.1 43.7 43.5 22.6 6.4 (0.4) 6.1 5.7 5.7 — — — 1.2 1.3 1.1 3.6 3.9 3.8 21.1 19.5 17.0 17.6 Punjab National Bank REDUCE 926 960 3.7 3,35,096 5,459 362 92.3 145.5 166.1 (31.3) 57.6 14.1 10.0 6.4 5.6 — — — 1.2 1.1 0.9 1.1 1.7 1.9 10.2 14.3 14.4 16.2 Rural Electrification Corp. ADD 259 365 40.8 2,56,030 4,171 987 47.4 50.5 50.9 22.7 6.4 0.8 5.5 5.1 5.1 — — — 1.3 1.2 1.1 3.7 3.8 4.2 24.6 21.9 18.8 12.1 Shriram City Union Finance REDUCE 1,635 1,550 (5.2) 1,07,468 1,751 66 86.2 91.4 115.8 6.2 6.1 26.7 19.0 17.9 14.1 — — — 3.7 2.6 2.2 0.5 0.6 0.8 19.8 16.9 16.8 0.6 Shriram Transport REDUCE 904 840 (7.1) 2,01,774 3,287 223 56.7 69.2 85.8 (7.1) 22.1 24.1 16.0 13.1 10.5 — — — 2.5 2.2 1.9 0.8 1.1 1.3 16.3 17.3 18.5 9.2 SKS Microfinance ADD 294 305 3.7 37,022 603 126 6.5 13.0 19.8 123.6 101.5 52.1 45.5 22.6 14.8 — — — 6.4 3.6 2.9 — — — 16.5 22.2 21.8 8.9 State Bank of India ADD 2,524 2,800 11.0 18,84,007 30,695 747 145.9 195.0 227.4 (29.3) 33.7 16.6 17.3 12.9 11.1 — — — 2.1 1.9 1.6 1.2 1.2 1.3 10.0 11.7 12.4 78.4 Union Bank NR 212 - (100.0) 1,33,877 2,181 630 26.7 40.5 46.1 (25.7) 51.6 13.6 7.9 5.2 4.6 — — — 1.0 0.9 0.8 1.9 2.8 3.2 10.3 14.1 14.2 16.7 Yes Bank ADD 587 575 (2.1) 2,43,216 3,963 414 44.9 42.2 45.5 23.7 (5.9) 7.9 13.1 13.9 12.9 — — — 3.4 2.1 1.9 1.2 1.3 1.4 25.0 18.8 15.4 29.9 Banks/Financial Institutions Attractive 1,24,13,643 2,02,246 2.1 19.4 14.4 14.8 12.4 10.9 — — — 2.3 2.0 1.8 1.4 1.6 1.9 15.3 16.4 16.5 499.5

India Daily Summary Daily Summary India

Source: Company, Bloomberg, Kotak Institutional Equities estimates

October 16, 2014 October 16,

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

61 Target O/S ADVT- Price (Rs) price Upside Mkt cap. shares EPS (Rs) EPS grow th (%) PER (X) EV/EBITDA (X) Price/BV (X) Dividend yield (%) RoE (%) 3mo

Company Rating 14-Oct-14 (Rs) (%) (Rs mn) (US$ mn) (mn) 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E (US$ mn) Cement ACC SELL 1,390 1,250 (10.0) 2,61,059 4,253 188 46.0 48.7 64.7 (37.6) 5.8 33.0 30.2 28.5 21.5 17.3 15.6 11.2 3.1 3.0 2.8 2.5 1.7 1.7 11.6 11.3 13.8 8.4 Ambuja Cements SELL 208 195 (6.3) 3,16,882 5,163 1,522 6.8 9.7 11.2 (34.6) 44.0 15.6 30.8 21.4 18.5 17.6 12.4 10.5 3.2 2.9 2.8 1.3 1.5 1.6 10.5 14.2 15.2 8.2 Grasim Industries ADD 3,394 3,500 3.1 3,11,696 5,078 92 214.4 209.2 244.3 (21.3) (2.4) 16.8 15.8 16.2 13.9 8.7 8.3 6.5 1.5 1.4 1.3 1.0 1.0 1.0 9.6 8.7 9.4 5.2 India Cements REDUCE 105 100 (5.1) 32,377 527 307 (2.3) 3.7 7.0 (133.4) 265.4 86.1 (46.7) 28.2 15.2 9.8 7.2 6.0 0.8 0.8 0.8 2.5 2.6 2.5 (1.8) 3.0 5.5 5.0 Shree Cement SELL 8,452 5,800 (31.4) 2,94,482 4,798 35 235.9 324.9 393.1 (18.2) 37.7 21.0 35.8 26.0 21.5 21.0 16.0 12.6 6.7 5.4 4.4 0.2 0.2 0.2 20.1 23.0 22.5 2.4 UltraTech Cement SELL 2,467 2,000 (18.9) 6,76,821 11,027 274 74.8 78.4 98.9 (26.2) 4.8 26.2 33.0 31.5 24.9 18.6 16.7 12.3 3.5 3.1 2.8 0.4 0.4 0.4 12.7 11.9 13.4 11.1 Cement Cautious 18,93,317 30,846 (29.5) 15.7 22.7 28.4 24.5 20.0 14.7 12.7 9.8 2.8 2.6 2.3 1.0 0.9 0.9 9.9 10.4 11.7 40.3 Consumer products Asian Paints SELL 646 575 (11.0) 6,19,739 10,097 959 12.8 15.3 17.7 10.3 19.7 15.2 50.4 42.1 36.6 30.4 25.6 22.1 14.5 12.3 10.6 0.8 1.0 1.2 33.1 33.5 33.0 11.6 Bajaj Corp. ADD 284 300 5.7 41,883 682 148 12.0 13.9 15.9 6.8 15.1 14.5 23.6 20.5 17.9 22.0 18.8 15.8 8.1 6.8 5.8 2.3 2.3 2.6 33.2 31.4 30.8 0.5 Britannia Industries BUY 1,344 1,460 8.6 1,61,243 2,627 120 33.0 40.2 49.9 51.8 21.9 24.2 40.8 33.5 26.9 25.5 20.5 16.6 20.1 13.6 10.7 0.9 1.1 1.4 58.3 48.6 44.4 3.1 Colgate-Palmolive (India) ADD 1,701 1,730 1.7 2,31,365 3,769 136 36.1 40.9 48.0 (1.2) 13.5 17.3 47.2 41.5 35.4 34.4 27.6 22.9 39.7 37.5 35.2 1.6 1.9 2.2 90.1 90.2 99.7 4.9 Dabur India ADD 210 245 16.7 3,66,198 5,966 1,744 5.2 6.2 7.3 19.0 17.8 18.6 40.0 34.0 28.7 32.7 27.6 23.0 13.8 11.1 9.1 0.8 1.1 1.3 38.5 36.1 34.9 7.3 GlaxoSmithKline Consumer REDUCE 5,261 5,300 0.7 2,21,246 3,605 42 160.4 140.3 163.4 54.5 (12.6) 16.5 32.8 37.5 32.2 29.5 34.9 28.7 12.8 10.7 9.1 0.9 1.0 1.1 42.5 29.8 29.3 1.0 Godrej Consumer Products REDUCE 954 880 (7.8) 3,24,776 5,291 340 22.1 25.6 31.0 9.3 15.5 21.2 43.1 37.3 30.8 30.2 25.8 21.3 8.1 6.9 6.0 0.6 0.7 0.8 21.3 21.3 22.2 2.2 Hindustan Unilever REDUCE 729 715 (1.9) 15,76,716 25,688 2,163 16.4 18.8 21.0 8.4 14.1 12.1 44.3 38.9 34.7 34.7 29.3 25.4 50.6 44.5 37.6 1.8 1.9 2.1 119.5 116.3 112.9 13.0 ITC ADD 347 390 12.4 28,09,263 45,769 8,096 10.8 12.0 13.9 15.7 11.2 15.6 32.2 28.9 25.0 23.3 20.1 17.0 10.2 9.3 8.3 1.7 2.1 2.4 35.6 35.1 36.9 30.9 Jubilant Foodw orks SELL 1,226 1,080 (11.9) 81,283 1,324 66 18.0 21.8 30.6 (9.9) 21.2 40.4 68.2 56.3 40.1 32.5 27.6 19.8 14.8 11.7 9.3 — — 0.3 24.1 23.2 26.0 5.3 Jyothy Laboratories REDUCE 253 220 (12.9) 45,735 745 181 4.7 10.5 11.7 21.4 123.4 10.8 53.6 24.0 21.7 33.2 23.8 18.5 6.2 5.3 4.6 1.2 1.2 1.4 12.4 23.9 22.7 1.6 Marico BUY 300 330 10.0 1,93,406 3,151 645 8.1 9.3 11.4 43.3 15.4 22.1 37.2 32.2 26.4 26.6 21.8 17.6 13.9 10.6 8.3 1.3 0.8 1.1 38.2 33.9 32.6 2.8 Nestle India SELL 5,946 5,300 (10.9) 5,73,318 9,341 96 114.4 122.4 146.2 3.3 7.0 19.4 52.0 48.6 40.7 28.9 27.0 23.0 22.2 17.8 14.6 0.8 0.8 1.0 56.4 46.5 44.2 2.5 Page Industries SELL 9,200 6,600 (28.3) 1,02,616 1,672 11 137.3 180.6 223.2 36.1 31.5 23.6 67.0 50.9 41.2 41.4 31.9 26.0 34.4 25.6 19.0 0.7 0.8 0.9 61.2 59.2 54.0 1.2 Speciality Restaurants BUY 158 160 1.6 7,394 120 47 4.0 3.2 5.3 (19.3) (19.3) 63.1 39.1 48.5 29.7 21.4 22.2 13.9 2.5 2.4 2.2 0.6 0.8 1.0 6.4 4.9 7.5 0.2 Tata Global Beverages REDUCE 156 155 (0.9) 98,709 1,608 631 6.0 6.5 7.5 (1.0) 8.0 15.9 26.0 24.1 20.8 14.1 13.0 11.2 1.4 1.4 1.3 1.4 1.4 1.6 7.0 6.9 7.6 7.8 Titan Company REDUCE 388 340 (12.5) 3,44,772 5,617 888 8.4 9.7 10.7 3.1 15.4 9.7 46.1 39.9 36.4 32.9 27.0 23.4 13.7 11.1 9.5 0.5 0.7 1.0 33.3 30.7 28.1 6.1 United Brew eries SELL 702 650 (7.4) 1,85,626 3,024 264 8.5 9.5 12.8 31.3 11.1 34.9 82.1 73.9 54.8 33.4 29.7 24.8 10.9 10.1 8.8 0.1 0.2 0.3 13.8 13.8 16.7 1.6 United Spirits BUY 2,441 3,200 31.1 3,54,796 5,780 145 (8.9) 34.0 69.1 (197.5) 480.9 103.0 (273.1) 71.7 35.3 43.7 29.4 20.0 11.7 12.0 9.2 - 0.1 0.3 (3.3) 16.5 29.5 21.3 Consumer products Attractive 83,40,082 1,35,879 13.2 16.5 18.4 41.2 35.4 29.9 28.3 24.2 20.2 12.8 11.3 9.8 1.3 1.5 1.7 31.1 32.0 32.9 124.8 Energy Aban Offshore RS 592 — — 33,326 543 56 83.9 91.2 98.3 117.2 8.7 7.8 7.1 6.5 6.0 8.1 6.9 6.6 0.8 0.6 0.6 0.7 0.8 1.0 10.0 10.0 9.4 16.5 Bharat Petroleum ADD 656 770 17.3 4,74,557 7,732 723 56.2 50.7 52.3 53.7 (9.8) 3.2 11.7 13.0 12.6 7.8 8.5 7.6 2.3 2.1 1.9 2.6 2.3 2.4 19.9 15.9 14.8 16.7 Cairn india REDUCE 284 340 19.7 5,32,460 8,675 1,874 65.2 56.4 52.0 4.4 (13.4) (7.8) 4.4 5.0 5.5 3.3 3.7 3.8 0.9 0.8 0.8 4.5 4.3 4.2 23.4 14.7 14.6 12.8 Castrol India SELL 430 260 (39.6) 2,12,760 3,466 495 10.0 9.6 10.2 10.3 (3.9) 6.7 43.1 44.9 42.1 30.1 29.8 27.9 30.5 44.8 42.5 1.6 1.7 1.9 76.9 80.8 103.7 2.4

GAIL (India) BUY 447 520 16.2 5,67,581 9,247 1,268 32.6 34.7 41.3 (9.4) 6.2 19.2 13.7 12.9 10.8 9.1 8.6 6.7 1.9 1.7 1.6 2.3 2.3 3.0 13.9 13.3 14.2 9.4 Daily Summary India GSPL ADD 89 95 7.3 49,802 811 563 7.4 7.5 8.5 (22.1) 1.0 13.6 11.9 11.8 10.4 6.2 6.1 5.5 1.3 1.2 1.1 1.1 1.7 2.9 11.9 10.8 11.2 1.7 Hindustan Petroleum REDUCE 498 500 0.5 1,68,708 2,749 339 51.1 44.5 51.7 106.4 (13.0) 16.3 9.7 11.2 9.6 8.6 7.3 6.0 0.9 0.8 0.8 3.1 2.7 3.1 9.1 7.2 7.9 15.8 Indian Oil Corporation ADD 367 430 17.1 8,91,907 14,531 2,428 23.2 33.4 37.6 38.1 43.8 12.6 15.8 11.0 9.8 10.0 7.1 5.2 1.3 1.2 1.1 2.4 3.1 3.5 8.1 10.8 11.1 6.9 Oil India BUY 583 720 23.4 3,50,675 5,713 601 49.6 58.4 73.1 (16.9) 17.8 25.1 11.8 10.0 8.0 5.4 4.0 3.0 1.6 1.5 1.4 3.7 4.5 5.7 12.5 13.5 15.5 4.4 Oil & Natural Gas Corporation ADD 402 465 15.6 34,40,602 56,055 8,556 31.2 37.1 45.6 6.2 18.9 23.2 12.9 10.9 8.8 5.8 4.5 3.6 1.6 1.5 1.3 2.4 3.1 4.0 12.7 13.4 14.9 33.4 Petronet LNG REDUCE 180 180 0.0 1,34,963 2,199 750 9.5 8.8 11.1 (38.1) (7.1) 25.7 19.0 20.4 16.2 10.5 11.0 9.4 2.4 2.2 2.0 1.1 1.3 1.8 13.2 10.8 12.1 7.3 Reliance Industries ADD 961 1,100 14.4 28,23,191 45,996 2,937 68.0 72.0 76.1 4.6 5.9 5.7 14.1 13.3 12.6 10.6 10.0 9.2 1.3 1.2 1.1 1.0 1.1 1.1 11.0 10.6 10.3 53.2 Energy Neutral 96,80,534 1,57,718 7.4 8.8 12.7 11.9 10.9 9.7 7.6 6.4 5.4 1.5 1.4 1.2 2.1 2.5 2.9 12.6 12.5 12.8 180.4

Source: Company, Bloomberg, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK

October 16, 2014 October 16,

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

India Daily Summary Daily Summary India Target O/S ADVT- Price (Rs) price Upside Mkt cap. shares EPS (Rs) EPS grow th (%) PER (X) EV/EBITDA (X) Price/BV (X) Dividend yield (%) RoE (%) 3mo

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Company Rating 14-Oct-14 (Rs) (%) (Rs mn) (US$ mn) (mn) 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E (US$ mn) Industrials ABB SELL 1,053 750 (28.8) 2,23,099 3,635 212 8.3 15.6 25.1 25.5 86.6 61.1 126.1 67.6 41.9 59.5 39.8 27.4 8.3 7.6 6.6 0.3 0.3 0.3 6.7 11.8 16.9 1.8 Bharat Heavy Electricals SELL 226 160 (29.2) 5,53,158 9,012 2,448 14.1 11.0 13.9 (47.7) (22.0) 25.9 16.0 20.5 16.3 12.1 12.8 9.1 1.7 1.6 1.5 1.3 1.0 1.3 10.9 7.9 9.3 21.7 Crompton Greaves BUY 205 220 7.1 1,28,766 2,098 627 4.1 6.1 10.9 215.8 46.7 80.4 49.8 33.9 18.8 20.5 15.3 10.5 3.5 3.3 2.9 0.6 0.8 1.0 7.2 10.0 16.3 18.3 Cummins India REDUCE 676 640 (5.3) 1,87,401 3,053 277 21.3 27.5 31.8 (23.6) 28.9 15.7 31.7 24.6 21.3 29.6 23.6 17.6 7.3 6.5 5.7 1.5 1.9 2.2 24.2 27.2 27.7 3.0 Kalpataru Pow er Transmission ADD 150 200 33.7 22,948 374 153 8.1 11.0 11.0 (7.9) 35.9 (0.1) 18.5 13.6 13.6 8.3 7.0 5.9 1.1 1.0 1.0 1.0 1.0 1.0 6.0 6.8 6.8 0.6 KEC International ADD 103 125 22.0 26,348 429 257 3.3 6.7 10.4 30.4 102.5 54.9 31.0 15.3 9.9 9.4 7.4 6.0 2.1 1.7 1.5 0.6 1.5 2.3 6.9 12.4 16.4 0.8 Larsen & Toubro ADD 1,440 1,675 16.3 13,34,643 21,744 927 49.2 47.7 71.2 (6.1) (3.1) 49.2 29.3 30.2 20.2 19.5 17.5 13.7 3.5 3.2 2.8 1.0 1.0 1.3 12.6 11.0 14.7 50.4 Siemens SELL 813 550 (32.3) 2,89,250 4,713 356 8.7 19.9 24.8 91.7 128.7 24.5 93.4 40.9 32.8 43.7 23.1 19.0 6.3 6.0 5.3 1.0 0.6 0.8 7.2 14.9 17.1 4.9

Thermax REDUCE 845 800 (5.3) 1,00,700 1,641 119 20.6 22.2 34.0 (23.2) 7.6 53.0 40.9 38.1 24.9 26.4 27.6 17.2 4.9 4.6 4.1 0.7 0.9 1.3 12.6 12.5 17.4 1.2 Voltas REDUCE 234 220 (5.8) 77,268 1,259 331 6.8 9.2 11.6 15.0 35.6 25.7 34.4 25.4 20.2 28.3 18.4 13.8 4.2 3.8 3.4 1.0 1.2 1.5 12.9 15.7 17.7 13.2 Industrials Cautious 29,43,580 47,958 (24.7) 1.2 39.2 29.4 29.0 20.8 19.6 17.4 13.3 3.2 3.0 2.7 1.0 1.0 1.2 10.9 10.2 12.8 115.9 Infrastructure

Adani Port and SEZ ADD 260 280 7.6 5,42,179 8,833 2,084 8.3 11.1 15.1 3.7 32.5 36.4 31.2 23.5 17.3 21.2 14.4 11.1 6.1 4.5 3.7 0.7 0.7 0.8 22.5 22.1 23.7 20.2 -

Container Corporation ADD 1,328 1,325 (0.2) 2,58,901 4,218 195 49.5 58.7 70.5 2.6 18.7 20.1 26.8 22.6 18.8 21.2 17.4 14.0 3.7 3.3 2.9 0.9 1.0 1.2 14.5 15.5 16.5 1.7 2014 October 16, Gujarat Pipavav Port REDUCE 161 140 (13.1) 77,858 1,268 483 3.6 6.5 8.8 137.1 80.1 34.0 44.4 24.6 18.4 28.7 18.8 14.6 5.5 4.5 3.5 — — — 18.1 23.3 25.6 3.3 IRB Infrastructure REDUCE 233 210 (9.8) 77,391 1,261 332 13.8 14.3 17.1 (17.4) 3.2 20.2 16.8 16.3 13.6 9.4 8.3 7.1 2.1 1.7 1.6 1.7 1.7 1.7 13.1 11.6 12.0 24.1 Infrastructure Attractive 9,88,990 16,113 6.7 25.7 29.8 28.4 22.6 17.4 18.1 13.4 10.7 4.5 3.6 3.1 0.7 0.8 0.9 15.9 16.2 17.9 50.3

Media DB Corp ADD 351 350 (0.3) 64,404 1,049 183 16.7 18.6 23.0 40.5 11.0 23.7 21.0 18.9 15.3 12.8 10.9 8.9 5.6 5.0 4.3 2.0 2.6 3.1 28.2 27.9 30.3 0.4 DishTV ADD 55 60 9.3 58,469 953 1,065 (0.4) 0.0 1.5 68.2 105.0 7,286.5 (139.4) 2,781.0 37.6 10.8 9.8 7.9 (18.7) (18.8) (38) — — — 17.9 (0.7) (67) 4.2 Jagran Prakashan ADD 125 135 7.6 39,049 636 311 7.6 7.7 9.7 50.2 1.5 26.1 16.5 16.3 12.9 10.5 8.5 7.0 4.1 3.7 3.3 2.5 3.2 4.0 25.0 23.8 27.1 0.4 Sun TV Netw ork ADD 308 455 47.8 1,21,278 1,976 394 19.0 21.0 24.0 5.4 10.9 13.9 16.2 14.6 12.8 10.1 8.9 7.8 3.7 3.5 3 3.2 4.2 5.2 25.2 25.6 27 6.4 Zee Entertainment Enterprises ADD 316 315 (0.3) 3,03,504 4,945 960 9.2 9.7 11.9 21.7 5.3 23.6 34.4 32.7 26.5 24.7 21.8 18.7 6.4 5.7 5.0 0.9 1.3 1.6 20.6 21.3 22.7 10.9 Media Neutral 5,86,702 9,559 27.8 16.0 25.4 27.5 23.7 18.9 15.2 13.3 11.2 6.0 5.4 4.8 1.5 2.0 2.5 21.8 22.8 25.4 22.3 Metals & Mining Coal India ADD 344 392 13.9 21,74,093 35,421 6,316 23.9 26.3 31.6 (12.9) 9.8 20.5 14.4 13.1 10.9 9.1 7.4 6.3 4.8 4.2 3.6 8.4 3.9 4.7 31.6 34.5 36.0 21.5

Hindalco Industries REDUCE 151 165 9.3 3,11,755 5,079 2,065 12.5 16.3 16.6 (15.1) 30.9 2.1 12.1 9.3 9.1 10.4 8.0 6.5 0.8 0.7 0.7 0.9 0.9 0.9 6.8 8.0 7.7 31.6 Hindustan Zinc ADD 159 190 19.5 6,71,775 10,945 4,225 16.5 16.9 18.3 0.7 2.5 8.1 9.6 9.4 8.7 6.0 5.4 4.2 1.8 1.6 1.4 2.2 2.2 2.2 20.1 17.8 16.9 3.4 Jindal Steel and Pow er REDUCE 157 170 8.3 1,43,639 2,340 915 20.9 20.3 21.3 (44.0) (2.6) 5.0 7.5 7.7 7.4 8.7 7.1 6.2 0.6 0.7 0.6 1.0 1.2 1.2 8.9 8.6 8.9 21.7 JSW Steel BUY 1,143 1,450 26.8 2,76,322 4,502 242 66.2 102.1 137.4 22.0 54.3 34.6 17.3 11.2 8.3 6.8 6.2 5.4 1.3 1.1 1.0 1.0 1.0 1.0 8.1 10.7 13.0 12.6 National Aluminium Co. SELL 61 45 (26.0) 1,56,825 2,555 2,577 2.7 3.9 3.7 16.7 44.2 (3.9) 22.7 15.7 16.4 11.1 7.3 7.5 1.3 1.2 1.2 2.5 2.5 2.5 5.8 8.0 7.4 2.9 NMDC ADD 154 185 20.2 6,10,366 9,944 3,965 16.1 18.5 18.4 (1.8) 14.8 (0.6) 9.6 8.3 8.4 5.5 4.6 4.8 2.0 1.8 1.7 5.5 5.5 5.5 22.3 23.1 20.8 7.1 Sesa Sterlite REDUCE 250 290 16.2 7,39,917 12,055 2,965 16.9 28.2 24.6 (32.2) 66.5 (12.9) 14.7 8.9 10.2 5.4 4.9 4.6 1.0 0.9 0.9 1.3 1.3 1.3 7.1 9.6 8.9 26.7 Tata Steel REDUCE 456 505 10.7 4,43,012 7,218 971 37.1 47.9 48.3 986.0 29.0 0.8 12.3 9.5 9.4 7.2 6.4 6.3 1.1 1.0 0.9 2.2 1.8 1.8 9.7 10.9 10.0 49.7 Metals & Mining Cautious 55,27,703 90,059 (6.3) 20.3 7.3 12.6 10.5 9.8 7.2 6.2 5.6 1.7 1.6 1.4 4.7 2.9 3.2 13.6 15.0 14.6 177.2 Pharmaceutical Biocon SELL 476 360 (24.4) 95,333 1,553 200 20.9 20.7 23.5 34.8 (1.3) 13.9 22.7 23.0 20.2 13.5 13.5 11.4 3.1 3.0 2.7 1.0 1.3 1.5 14.5 13.2 14.2 9.3 Cipla BUY 579 610 5.4 4,64,490 7,568 803 16.0 19.0 25.1 (17.4) 18.6 32.2 36.1 30.5 23.1 26.4 20.5 14.8 4.6 4.1 3.6 0.4 0.7 1.0 13.4 14.3 16.7 18.9 Dr Reddy's Laboratories ADD 2,935 2,930 (0.2) 4,97,874 8,111 170 126.8 131.7 147.8 23.2 3.8 12.2 23.1 22.3 19.9 19.6 17.7 15.1 5.5 4.5 3.8 0.6 0.7 0.8 23.7 20.3 19.1 16.9 Lupin BUY 1,330 1,370 3.0 5,98,703 9,754 450 40.8 46.4 56.2 39.0 13.7 21.1 32.6 28.7 23.7 20.1 17.7 14.4 8.6 6.8 5.5 0.4 0.5 0.6 28.1 30.0 28.0 11.9 Sun Pharmaceuticals SELL 803 720 (10.3) 16,63,609 27,104 2,072 27.6 31.3 34.6 56.8 13.3 10.7 29.1 25.7 23.2 22.0 16.7 14.4 9.0 6.8 5.4 0.4 0.9 1.1 34.1 30.1 25.9 32.4 Pharmaceuticals Neutral 33,20,008 54,090 33.1 11.7 15.3 29.1 26.1 22.6 21.4 17.4 14.5 7.0 5.7 4.7 0.4 0.8 0.9 23.9 21.7 20.6 122.9 Real Estate DLF BUY 105 210 100.1 1,86,967 3,046 1,781 5.6 4.0 5.7 24.8 (27.8) 41.4 18.7 26.0 18.4 15.5 14.6 12.4 0.6 0.6 0.6 1.9 1.9 1.9 3.5 2.5 3.4 30.3 Godrej Properties REDUCE 237 225 (5.2) 47,074 767 198 8.0 10.2 12.4 (8.8) 27.0 20.9 29.5 23.2 19.2 22.7 16.2 11.5 2.6 2.4 2.2 0.8 0.8 1.1 9.9 10.8 12.0 1.0 Oberoi Realty BUY 211 325 53.9 69,323 1,129 328 9.5 16.7 26.0 (38.4) 76.0 56.1 22.3 12.7 8.1 15.0 10.2 5.5 1.6 1.4 1.2 0.9 0.9 0.9 7.3 11.8 16.3 1.1 Prestige Estates Projects REDUCE 223 240 7.5 83,700 1,364 375 10.4 11.2 15.8 24.2 8.5 40.3 21.6 19.9 14.2 14.6 12.0 9.3 2.8 2.1 1.9 0.6 0.5 0.5 12.7 12.1 14.0 1.7

Sobha Developers BUY 416 520 25.1 40,775 664 98 24.0 26.7 Daily Summary India 41.3 8.2 11.4 54.8 17.3 15.6 10.1 8.9 8.2 6.3 1.8 1.6 1.5 1.7 1.7 1.7 10.6 11.0 15.4 1.6 Sunteck Realty ADD 307 410 33.6 18,404 300 60 25.2 10.7 81.2 3,653.8 (57.4) 656.9 12.2 28.6 3.8 8.7 25.6 3.1 2.9 2.7 1.6 0.7 0.7 0.7 26.8 9.7 52.7 0.4 Real Estate Attractive 4,46,242 7,270 17.1 (1.0) 63.7 19.8 20.0 12.2 14.5 13.1 9.2 1.1 1.0 1.0 1.3 1.3 1.3 5.4 5.1 7.9 36.2

Source: Company, Bloomberg, Kotak Institutional Equities estimates

October 16, 2014 October 16,

Kotak Institutional Equities: Valuation summary of KIE Universe stocks

63 Target O/S ADVT- Price (Rs) price Upside Mkt cap. shares EPS (Rs) EPS grow th (%) PER (X) EV/EBITDA (X) Price/BV (X) Dividend yield (%) RoE (%) 3mo

Company Rating 14-Oct-14 (Rs) (%) (Rs mn) (US$ mn) (mn) 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E (US$ mn) Technology HCL Technologies REDUCE 1,723 1,600 (7.1) 12,19,884 19,875 708 89.8 102.3 110.0 57.8 13.9 7.6 19.2 16.8 15.7 13.0 11.6 10.4 6.0 4.7 3.8 1.3 1.3 1.3 36.0 31.5 27.2 24.8 Hexaw are Technologies SELL 182 145 (20.1) 54,768 892 302 12.6 10.6 12.3 14.5 (16.4) 16.5 14.4 17.2 14.7 9.4 11.5 9.9 4.6 5.5 4.7 6.1 4.1 3.4 31.6 29.0 34.4 7.8 Infosys ADD 3,918 4,250 8.5 22,38,917 36,477 571 186.3 215.1 245.1 13.0 15.4 13.9 21.0 18.2 16.0 14.5 12.7 10.6 5.0 4.3 3.7 1.6 1.9 2.1 26.3 25.5 24.9 68.5 Mindtree ADD 1,035 1,180 14.0 86,941 1,416 84 53.7 63.3 73.8 31.4 18.0 16.5 19.3 16.3 14.0 14.1 11.7 9.8 5.3 4.3 3.5 1.2 1.5 1.8 30.5 29.1 27.7 3.6 Mphasis SELL 411 400 (2.6) 86,299 1,406 210 14.7 35.0 36.8 (58.4) 138.0 5.2 27.9 11.7 11.2 19.8 8.3 7.7 1.7 1.6 1.5 1.7 4.3 4.5 6.1 13.9 13.8 1.5 TCS ADD 2,699 2,800 3.7 52,86,923 86,136 1,959 97.6 113.0 129.9 37.4 15.7 15.0 27.7 23.9 20.8 20.3 17.8 15.1 9.6 8.4 6.9 1.2 2.3 1.9 39.7 37.4 36.6 43.0 Tech Mahindra ADD 2,372 2,650 11.7 5,65,675 9,216 238 128.0 142.1 166.9 25.6 11.0 17.4 18.5 16.7 14.2 12.7 11.8 9.8 6.2 4.9 3.9 0.9 1.1 0.8 33.5 29.3 27.5 22.7 Wipro ADD 580 650 12.1 14,28,663 23,276 2,463 31.7 35.8 40.8 27.1 13.1 13.9 18.3 16.2 14.2 12.8 10.6 8.9 4.2 3.5 3.0 1.4 1.6 1.7 24.9 23.5 22.5 18.0 Technology Attractive 1,09,68,069 1,78,695 29.6 15.0 13.7 22.9 19.9 17.5 16.2 14.1 12.0 6.4 5.4 4.6 1.3 2.0 1.8 27.9 27.4 26.1 189.8 Telecom Bharti Airtel ADD 398 415 4.2 15,92,564 25,946 3,997 8.3 14.1 16.7 39.0 69.8 18.0 47.8 28.2 23.9 8.3 7.4 6.3 2.7 2.4 2.3 0.5 0.5 0.8 6.0 9.1 9.9 28.6 Bharti Infratel REDUCE 290 250 (13.9) 5,48,404 8,935 1,889 8.0 10.7 11.8 51.4 33.1 10.4 36.1 27.1 24.6 12.2 11.1 10.1 3.0 3.1 3.0 1.5 3.3 2.9 8.6 11.2 12.3 — IDEA BUY 154 185 20.2 5,53,145 9,012 3,595 5.9 7.8 8.9 94.4 30.9 14.3 26.0 19.8 17.4 9.3 8.1 6.8 3.3 2.4 2.2 0.2 0.5 0.6 12.8 14.2 13.2 24.4 Reliance Communications SELL 101 95 (6.1) 2,49,656 4,067 2,467 3.2 3.4 5.3 (0.4) 5.7 53.6 31.2 29.5 19.2 8.9 6.9 6.5 0.9 0.7 0.7 — — — 2.4 2.8 3.7 13.2 Tata Communications ADD 384 390 1.5 1,09,483 1,784 285 1.2 3.0 5.7 104.2 140.8 93.1 311.0 129.1 66.9 7.1 7.2 6.6 13.6 12.2 10.1 — — — 3.1 9.9 16.5 4.1 Telecom Neutral 30,53,252 49,744 107.4 51.7 18.9 40.6 26.8 22.5 8.8 7.7 6.7 2.5 2.2 2.0 0.6 0.9 1.1 6.1 8.1 9.0 70.2 Utilities Adani Pow er SELL 43 40 (7.5) 1,24,211 2,024 2,872 (1.0) (3.8) (2.1) 88.8 (279.5) 45.5 (42.7) (11.3) (20.7) 11.9 9.4 9.0 1.9 2.3 2.6 — — — (5.4) (18.4) (11.7) 5.3 CESC ADD 710 695 (2.1) 88,729 1,446 125 39.3 56.2 69.9 14.9 42.8 24.4 18.0 12.6 10.2 13.5 9.1 7.2 1.1 1.1 1.0 1.0 1.1 1.1 6.8 8.8 10.1 6.8 JSW Energy SELL 72 62 (13.9) 1,18,162 1,925 1,640 6.9 8.6 7.6 2.9 24.0 (11.7) 10.4 8.4 9.5 6.6 5.7 5.5 1.8 1.5 1.3 — — — 17.7 19.3 14.4 3.2 NHPC REDUCE 19 24 25.3 2,12,003 3,454 11,071 1.7 1.9 2.4 (12.6) 12.3 24.9 11.3 10.1 8.1 10.4 9.0 7.9 0.8 0.7 0.7 2.2 2.6 3.3 6.5 7.5 8.9 2.4 NTPC REDUCE 141 135 (4.1) 11,60,137 18,901 8,245 13.3 11.2 12.4 6.8 (15.5) 10.0 10.6 12.5 11.4 9.4 10.0 8.6 1.4 1.3 1.2 4.1 2.4 2.6 13.2 10.4 10.7 15.5 Pow er Grid BUY 136 145 6.6 7,11,758 11,596 5,232 8.6 9.5 13.0 (5.0) 9.8 37.5 15.8 14.3 10.4 11.9 9.6 7.8 2.1 1.9 1.7 1.9 2.1 2.9 14.9 13.8 17.1 11.9 Reliance Pow er SELL 71 62 (12) 1,97,902 3,224 2,805 3.7 4.0 4.1 1.5 9.4 2.3 19.3 17.6 17.2 24.2 23.9 12.0 1.0 1.0 0.9 — — — 5.4 5.6 5.4 8.8 Tata Pow er ADD 87 102 17.3 2,43,451 3,966 2,800 2.1 3.1 6.4 (46.6) 43.2 109.5 40.6 28.3 13.5 7.9 7.8 6.3 1.9 1.6 1.5 1.2 1.4 1.4 4.1 6.2 11.3 7.5 Utilities Cautious 30,06,754 48,987 10.2 (4.6) 24.6 13.6 14.2 11.4 10.6 9.8 8.1 1.3 1.2 1.1 2.4 1.8 2.2 9.7 8.6 10.0 61.4 Others Carborundum Universal BUY 190 200 5.0 35,749 582 188 4.9 8.2 12.4 1.7 69.0 50.3 39.1 23.1 15.4 15.7 11.2 8.5 2.9 2.7 2.4 0.7 1.1 1.7 7.2 12.9 17.5 0.8 Coromandel International SELL 294 210 (28.5) 83,128 1,354 283 12.6 18.1 20.2 (17.5) 43.4 11.8 23.3 16.3 14.5 12.1 9.6 8.7 3.6 3.1 2.7 1.5 1.6 1.6 15.0 19.8 19.0 1.4 Godrej Industries ADD 292 345 18.2 97,862 1,594 335 7.7 11.9 15.3 13.8 55.5 28.3 38.1 24.5 19.1 29.3 17.6 12.6 3.6 3.1 2.7 0.6 0.6 0.6 8.8 13.6 15.0 3.1 Havells India ADD 267 280 5.0 1,66,448 2,712 624 8.0 9.5 11.4 19.9 18.3 21.0 33.4 28.2 23.3 20.7 17.3 14.6 9.7 8.3 7.0 1.1 1.4 1.7 31.2 31.7 32.5 7.3 Info Edge BUY 873 750 (14.1) 95,304 1,553 109 8.4 11.7 17.0 (20.1) 39.4 45.7 104.0 74.6 51.2 89.9 72.5 43.2 11.7 10.9 9.8 0.3 0.5 0.7 12.8 15.2 20.2 2.7 Jaiprakash Associates REDUCE 30 54 79.4 73,206 1,193 2,432 (5.4) 3.8 5.3 (373.8) 170.7 40.2 (5.6) 7.9 5.7 10.2 7.5 6.3 0.6 0.5 0.5 0.0 0.0 0.0 (9.9) 7.3 9.1 38.4 Just Dial ADD 1,645 1,650 0.3 1,15,175 1,876 70 17.1 20.6 32.6 69.2 20.4 57.8 96.0 79.7 50.5 76.3 62.2 36.7 21.5 18.6 15.2 0.4 0.4 0.7 25.0 25.0 33.1 8.6

India Daily Summary Daily Summary India Rallis India BUY 241 230 (4.5) 46,829 763 194 7.8 10.5 12.6 27.6 34.4 20.4 30.8 22.9 19.1 18.1 13.6 11.0 6.5 5.4 4.5 1.0 1.0 1.1 22.1 25.4 25.2 1.8 Tata Chemicals BUY 392 450 14.9 99,800 1,626 255 (40.5) 30.3 38.5 (357.7) 174.9 27.0 (9.7) 12.9 10.2 8.9 6.5 5.5 1.5 1.4 1.2 2.6 2.6 2.6 (15.9) 11.3 12.7 5.3 UPL ADD 344 370 7.5 1,47,525 2,404 429 21.8 27.7 31.8 27.3 27.0 14.8 15.8 12.4 10.8 8.1 7.0 6.2 2.8 2.4 2.0 1.2 1.3 1.5 19.8 21.3 20.7 9.8 Others 9,61,026 15,657 (87.8) 1,239.7 26.9 249.1 18.6 14.6 12.8 9.8 8.2 2.8 2.4 2.1 1.0 1.1 1.3 1.1 12.9 14.5 79.2 KIE universe 6,66,02,477 10,85,106 6.4 15.4 16.7 18.4 15.9 13.7 11.2 9.7 8.2 2.6 2.4 2.1 1.7 1.7 1.9 14.4 14.9 15.5 KIE universe ex-energy 5,69,21,943 9,27,388 6.1 17.3 17.8 20.3 17.3 14.7 12.5 10.8 9.1 3.0 2.7 2.4 1.6 1.6 1.8 15.0 15.8 16.5 KIE universe ex-energy & ex-commodities 4,95,00,923 8,06,482 10.5 16.7 19.7 21.5 18.4 15.4 14.1 12.3 10.2 3.3 3.0 2.6 1.3 1.5 1.6 15.6 16.2 17.0

Notes: (a) We have used adjusted book values for banking companies. (b) 2014 means calendar year 2013, similarly for 2015 and 2016 for these particular companies. (c) EV/EBITDA excludes banking Sector. (d) Exchange rate (Rs/US$)= 61.38

KOTAK INSTITUTIONAL EQUITIES RESEARCH EQUITIES INSTITUTIONAL KOTAK Source: Company, Bloomberg, Kotak Institutional Equities estimates

October 16, 2014 October 16,

Disclosures

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

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

40% 35.6% * The above categories are defined as follows: Buy = We expect this stock to deliver more than 15% returns over the 30% next 12 months; Add = We expect this stock to deliver 25.5% 23.5% 5-15% returns over the next 12 months; Reduce = We expect this stock to deliver -5-+5% returns over the next 20% 15.4% 12 months; Sell = We expect this stock to deliver less than - 5% returns over the next 12 months. Our target prices are 10% also on a 12-month horizon basis. These ratings are used illustratively to comply with applicable regulations. As of 2.0% 0.7% 2.0% 0.7% 30/06/2014 Kotak Institutional Equities Investment Research 0% had investment ratings on 149 equity securities. BUY ADD REDUCE SELL

Source: Kotak Institutional Equities As of June 30, 2014

Ratings and other definitions/identifiers

Definitions of ratings

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

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

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

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

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

Other definitions

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

Other ratings/identifiers

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

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

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

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

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

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

KOTAK INSTITUTIONAL EQUITIES RESEARCH 64

Corporate Office Overseas Offices

Kotak Securities Ltd. Kotak Mahindra (UK) Ltd Kotak Mahindra Inc 27 BKC, Plot No. C-27, “G Block” 8th Floor, Portsoken House 50 Main Street, Ste. 890 Bandra Kurla Complex, Bandra (E) 155-157 Minories Westchester Financial Centre Mumbai 400 051, India London EC3N 1LS White Plains, New York 10606 Tel: +91-22-43360000 Tel: +44-20-7977-6900 Tel:+1-914-997-6120

1. Note that the research analysts contributing to this report may not be registered/qualified as research analysts with FINRA; and

2. Such research analysts may not be associated persons of Kotak Mahindra Inc and therefore, may not be subject to NASD Rule 2711 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

3. Any U.S. recipients of the research who wish to effect transactions in any security covered by the report should do so with or through Kotak Mahindra Inc and (ii) any transactions in the securities covered by the research by U.S. recipients must be effected only through Kotak Mahindra Inc at [email protected].

Kotak Securities Limited and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We along with our affiliates are leading underwriter of securities and participants in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationships with a significant percentage of the companies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other business selection processes. Investors should assume that Kotak Securities Limited and/or its affiliates are seeking or will seek investment banking or other business from the company or companies that are the subject of this material and that the research professionals who were involved in preparing this material may participate in the solicitation of such business. Our research professionals are paid in part based on the profitability of Kotak Securities Limited, which include earnings from investment banking and other business. Kotak Securities Limited generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. Additionally, Kotak Securities Limited generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations 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. Additionally, other important information regarding our relationships with the company or companies that are the subject of this material is provided herein.

This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. We are not soliciting any action based on this material. It is for the general information of clients of Kotak Securities Limited. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, clients should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Kotak Securities Limited does not provide tax advise to its clients, and all investors are strongly advised to consult with their tax advisers regarding any potential investment.

Certain transactions -including those involving futures, options, and other derivatives as well as non-investment-grade securities - give rise to substantial risk and are not suitable for all investors. The material is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only. We endeavor to update on a reasonable basis the information discussed in this material, but regulatory, compliance, or other reasons may prevent us from doing so. We and our affiliates, officers, directors, and employees, including persons involved in the preparation or issuance of this material, may from time to time have “long” or “short” positions in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. For the purpose of calculating whether Kotak Securities Limited and its affiliates holds beneficially owns or controls, including the right to vote for directors, 1% of more of the equity shares of the subject issuer of a research report, the holdings does not include accounts managed by Kotak Mahindra Mutual Fund. Kotak Securities Limited and its non US affiliates may, to the extent permissible under applicable laws, have acted on or used this research to the extent that it relates to non US issuers, prior to or immediately following its publication. Foreign currency denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived from the investment. In addition, investors in securities such as ADRs, the value of which are influenced by foreign currencies affectively assume currency risk. In addition options involve risks and are not suitable for all investors. Please ensure that you have read and understood the current derivatives risk disclosure document before entering into any derivative transactions.

This report has not been prepared by Kotak Mahindra Inc. (KMInc). However KMInc has reviewed the report and, in so far as it includes current or historical information, it is believed to be reliable, although its accuracy and completeness cannot be guaranteed. Any reference to Kotak Securities Limited shall also be deemed to mean and include Kotak Mahindra Inc.

This report is distributed in Singapore by Kotak Mahindra (UK) Limited (Singapore Branch) to institutional investors, accredited investors or expert investors only as defined under the Securities and Futures Act. Recipients of this analysis / report are to contact Kotak Mahindra (UK) Limited (Singapore Branch) (16 Raffles Quay, #35-02/03, Hong Leong Building, Singapore 048581) in respect of any matters arising from, or in connection with, this analysis / report. Kotak Mahindra (UK) Limited (Singapore Branch) is regulated by the Monetary Authority of Singapore.