Agriculture Research

Ears on the Ground – Trip down the key SME and Agri belts of India

UP GDP size: $175bn Income per capita: $808 Gujarat GDP size: $152bn Income per capita: $2,431

Maharashtra GDP size: $298bn Income per capita: $2,490

Uttar Pradesh

Strategy

550 kms

Maharashtra

1,250 kms

Gujarat

1,200 kms

Tamil Nadu

2,000 kms

MSMEs Agriculture

Tamil Nadu GDP size: $194bn Income per capita: $2,807

Real Estate Government Spending Page 1

Ears on the Ground

Strategy

Trip down the key SME and Agri belts of India ...............

Rural recovery clearly visible; Kharif sowing up, Farmers’ income to increase 10% this year visà-vis 1% decline last year. PM Crop Insurance scheme a game changer for farmers – Protecting them from income volatility due to nature’s vagaries; Also Farm ‘Pond on Demand’ Scheme; Ability and intent to grow two crops vis-à-vis one earlier – Income levels to increase as well as get less volatile.

Removal of APMC Act for fruits and vegetables a game changer for food inflation; Can structurally bring prices down 25+%

Rs. 150bn of inflows for 5mn sugarcane farmers of UP after a 3 year lull; Will have an impact on UP state elections

Sharp pickup in NREGA expenditure and availability of non-farm employment leading to gradual rise in rural wages; Farm mechanization inevitable

Date

Sep 19, 2016

Market data BSE Sensex

26,192

NSE Nifty

7,977

S 20% 10%

0% -10% -20% Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Sensex

BSE 200

Performance (%)

Central Govt. and State Govt. spend on roads clearly visible across India – urban and rural

SME not out of the woods yet. Auto related seeing growth though M&HCVs have hit an air pocket; Textiles, leather, Gems still in doldrums; Availability of finance still a huge problem

1m

3m

12m

BSE200

-4%

-2%

1%

Sensex

-4%

-4%

-3%

Deepening slowdown in residential real estate now percolating to Tier 2 and Tier 3 towns, The popular 20:80 scheme is a passé, Developers offering subvention schemes like ‘pay 5% now and remaining on possession’, yet struggling to find buyers GAUTAM SINGH  [email protected]  +91 22 4228 8152 GAURAV NAGORI, CFA  [email protected]  +91 44 4344 0072

Find Spark Research on Bloomberg (SPAK ), Thomson First Call, Reuters Knowledge and Factset

Page 2

Ears on the Ground

Strategy

Four states (Maharashtra, Gujarat, Tamil Nadu, UP), 15 days, 5000Kms #1:1250 kms of travel across Maharashtra

#2: A 1200 kms trip in Gujarat

Lasalgaon APMC: Largest onion mkt in Asia

Cotton belt

Auto ancillary belt

Textile & Diamond hub

Cluster of sugar mills Source: Spark Capital Research

Source: Spark Capital Research

#3: 2000 kms of travel across Tamil Nadu

#4: 550 kms across the sugar belt in Uttar Pradesh

Sugarcane belt Auto ancillary belt

Textile belt: Tirupur Knitting capital of India

Rice bowl of Tamil Nadu Industrial Cluster

Source: Spark Capital Research

Source: Spark Capital Research

Page 3

(A) AGRI AND RURAL INDIA – FARMERS’ INCOME VOLATILITY TO REDUCE

Strategy

#1: Kharif sowing up: Farmers’ income to go up ~10% yoy this year vs. ~1% decline last year 1. Paddy sowing in full swing in Maharashtra; 2. A farmer explaining a shift from cotton to pulses due to higher prices of the latter

Farmers' income to increase due to higher output and prices

Kharif sowing is in full swing

4% yoy rise in Kharif sown area. Though Gujarat, Haryana and Punjab have witnessed poor rainfall, these states have good irrigation system

Rainfall is good where it’s needed the most

Though Gujarat, Haryana and Punjab have witnessed poor rainfall, these states have good irrigation system; Good rainfall in Rajasthan, MP, UP and AP is a big positive

Farmers’ income to go up

We estimate ~10% yoy increase in farmers’ income this year vs. ~1% decline last year (Based on 4% increase in volume and 6% rise in price) Source: Spark Capital Research

Normal rainfall this year has led to 4% yoy rise in Kharif sown area. We estimate ~10% yoy increase in farmers’ income this year vs. ~1% decline last year (Based on 4% increase in volume and 6% rise in price)

Source: GoI, Spark Capital Research,

Foodgrains production (ton mn): Kharif

FY17

FY16

FY15

FY14

FY13

FY12

-2% -10% 4%

-5

1.5 1.9

FY11

0.8 10.2 105.4

FY15

0.8 11.4 101.2

FY14

115

-3.2

3.1

FY10

0 -0.5

6

4.7

3.4 3.1

FY09

-8%

7.0

5.8

FY08

4.6

120

5

27.5 13.2

FY07

5.0

4.2

FY17E

6% 3%

FY16

18.8 18.7

15 10

124.0

125

17.7 18.2

129.2

128.1

46.7

FY06

130

20 18 16 14 12 10 8 6 4 2 0

FY05

20

FY13

Sugarcane Jute & Mesta Cotton Total

135

FY12

Rice Pulses Coarse Cereals Oilseeds

Area sown in Area sown in YoY FY16 (mn Ha) FY17 (mn Ha) Change (%) 37.1 38.0 3% 11.1 14.4 29%

FY11

Crop

Average hike in MSP of kharif crop (%, yoy)

As on 9th Sep’16

Page 4

(A) AGRI AND RURAL INDIA – FARMERS’ INCOME VOLATILITY TO REDUCE

Strategy

#2: PM Crop Insurance scheme – A game changer for farmers; to protect farmers from income vagaries

PM Crop Insurance scheme - A mega hit among farmers 50% to 75% subsidy on premium

Against the general premium of 8% to 10%, farmers have to pay 1.5% for Rabi crops, 2% for Kharif crops, 5% for commercial crops

Most farmers lapping up the scheme

~80% of the farmers have taken crop insurance scheme in 18 districts of Maharashtra, Farmers are taking the scheme in other states too

A total 53 crops under coverage

A wide rage of crops have been covered under the scheme. Eg: Maharashtra has 17 crops under coverage by Reliance GIC and HDFC ERGO

Risk covered

The risks covered are flood, fire, lighting strike, prolonged clouds, cyclonic storm, landslide, drought or dry spells and pest infestation

Can be Rs. 150bn category in general insurance

From no where, PM crop insurance scheme to create an estimated Rs 150bn market for general insurance companies

Ten Insurance companies

Agriculture Insurance Company (AIC), Bajaj Allianz, Chola MS, FGI, HDFC ERGO, ICICI Lombard, IFCO Tokio, Reliance GIC, SBI, Tata AIG

Panacea for a lot of problems

Farmers’ income volatility to fall, cases of farmers suicide to come down, Govt need not announce farm loan waiver, drought relief package etc.

Govt allocation for agri relief measures doubles from ~Rs.50bn to Rs.90bn 50% of the cropped areas to be covered under this scheme in next 5-yrs

PMFBY replaces the existing National Agriculture Insurance Scheme

Claims to be settled within 25 days from the reported date of loss

Protection from natural disasters, pest & diseases

Premium capped at 2% for food grains & 5% for commercial crops

A farmer’s receipt of crop insurance premium payment in Nasik district of Maharashtra

Source: Spark Capital Research

Page 5

(A) AGRI AND RURAL INDIA – FARMERS’ INCOME VOLATILITY TO REDUCE

Strategy

#3: ‘Farm Pond on Demand’ scheme in Maharashtra – Farmers to take two crops per year vs. one crop now

Farm Pond on Demand’ scheme in Maharashtra

Rs. 50,000 subsidy on pond scheme

Maharashtra Govt provides Rs. 50,000 to build a 30x30x3 meter pond in the field. For remaining amount, farmers can access loans

~10% of the farmers have taken the scheme

In less than two months, around 60,000 farmers in Vidarbha and Marathwada regions have taken this scheme.

These farmers’ income to double

These farm ponds would enable the farmers to take two crops in a year vs. only one crop until now, doubling their annual income

#1: A farmers, Mr. Rajendra Rao from Maharashtra, has built a pond in his field this year; it would enable him to take 2nd crop in a year... Farmer’s word “I got Rs. 50,000 from Govt and for remaining amount I took a loan from the bank. This year, I can take two crops vs. only one during Monsoon earlier”. Source: Spark Capital Research

#2: ...like Mr Rao, around 10-15% of the farmers have built the ponds in their fields; it would double the income of these farmers

Source: Spark Capital Research

#3: Drip irrigation is another trend which is catching up in order to better utilize the water from these ponds

Source: Spark Capital Research

Page 6

(A) AGRI AND RURAL INDIA – FARMERS’ INCOME VOLATILITY TO REDUCE

Strategy

#4: Removal of fruits and vegetables from APMC act in Maharashtra: To bring inflation down Removal of APMC Act – A move which could bring inflation down I.

Study shows that farmers get only 32% to 68% of the market price for their products.

II.

APMC licensed agents charge between 2% to 10% commission, which is very high. Middlemen receive double commission (both from seller and buyer), thus increasing prices for end consumers.

III.

Middlemen do not pass the benefit to farmers or consumers. During crop output season, when they buy from farmers at low prices, they do not reduce the prices to final consumers.

IV.

Maharashtra Govt. has made the commission zero for fruits and vegetables since Jul’16 which led to a sharper fall in fruits and vegetable prices in Maharashtra as compared to other states. However, it will take some time to see the full benefit of this decision as farmers get ready to sell their produce directly

Despite the removal of APMC act on fruits and vegetables, farmers still sell onions to APMC agents. No commission is charged

Source: Spark Capital Research

Rate of commission charged by APMC licensed agents is very high; Maharashtra Govt. has made it zero for fruits and vegetables in Jul’16... APMC markets

(% of the value produce)

APMC Vashi (Mumbai)

Onion - 6.5%, Vegetable - 8%, Fruit-10%, NonPerishables – up to 2.75 % of the value produce

APMC Azadpur (Delhi)

6% of the value of the produce

Lasalgaon APMC (Nasik)

Onion - 4%

APMC, Gultekari (Pune)

Perishables - 6.0% of the value of the produce, NonPerishables - 3.0% of the produce

APMC, Yashwantpur (Bangalore)

Removal of middlemen has huge potential to bring inflation sharply down

Retailer Wholesaler Commissio ning Agent Traders

Farmers Fruits and Veg. - 5.0 % of the produce, Others: 2%

25%

30%

Consumer

30% Final consumer pays Rs 25/Kg, ~150% jump

20%

A farmer sells onions at Rs. 10 /Kg Page 7

(A) AGRI AND RURAL INDIA – FARMERS’ INCOME VOLATILITY TO REDUCE

Strategy

#5: Surge in sugar prices brings cheer to sugar belt after 3 yrs of lull; Rs 150bn inflow sugarcane farmers Huge relief to the farm community due to rise in sugar prices I.

For the last thee years, a total of 5 million sugarcane cultivating families in UP were facing huge challenges due to no/ partial payment for their sugarcane by sugar mills.

#1: Surge in sugar prices is helping Sugar mills to pay out their dues to farmers 4000

3,700

3500 3148

II.

Thanks for a sharp increase in sugar prices and aid from the government, most sugar mills are paying their dues to farmers.

3000

III.

Total sugarcane related arrears have come down ~60% yoy in India and over 82% in UP.

2500

IV.

Of the total payables of Rs 148bn, the mills have already paid Rs 122bn (82%), leaving Rs 26bn as arrears. The govt is forcing mills to make the remaining payment in the next one month.

2000

V.

2951

2951

2917

3000

2727 2492

1500 FY10

Govt has also allowed 5% ethanol blending rule with major OMCs getting into contracts with sugar mills

FY11

FY12

FY13

FY14

FY15

FY16

FY17*

Sugar Prices (Rs./ton) Source: ISMA, Spark Capital Research

#2: Total sugarcane related arrears have come down ~60% yoy in India 240

#3: Total sugarcane related arrears have come down over 82% yoy in UP 160

221

148.2

186

200

120

Sugar mills in UP have paid the sugarcane growers Rs. 122bn in arrears in the last 3-4 months

160 127 120

93

86

80

80 40

25.8

40 0

FY12

FY13

FY14

FY15

FY16

FY15

Sugarcane arrears: India ( Rs. bn) Source: Spark Capital Research

FY16 Sugarcane arrears: UP ( Rs. bn)

Source: Spark Capital Research

Page 8

(A) AGRI AND RURAL INDIA – FARMERS’ INCOME VOLATILITY TO REDUCE

Strategy

#6: Pick up in MNREGA expenditure and availability of non-farm employment leading to gradual rise in rural wages #1: Activity under MNREGA has gained picked up in last six months in Maharashtra, TN and UP; No takers for MNREGA in Anand,Gujarat

#1: Non-farm activity: People working in a brick factory in UP; a family of 2 people earns around Rs. 1000/day

MNREGA scheme MNREGA has gained momentum in last 6-9 months. However, the Gram Panchayat head of village in Anand district in Gujarat told us that Govt tried to launch MNREGA a few times but none came to work because people get other better and higher paying jobs. Source: Spark Capital Research

Source: CEIC, Spark Capital Research

#2: MNREGA spend picks up momentum: MNREGA wage expenditure is up 91.5% yoy during Apr-Aug FY17 239.8

250

#3: Nominal wage growth in rural India inches up to a 13-month high of 5.2% in Jun’16; (real wage growth is still in negative territory) 20

17.6

15

200

10 130.1

6.1

125.2

5.2

5

Wage expenditure under NREGA (Rs. bn) Source: Spark Capital Research

Rural wage growth: Nominal ( % yoy)

-0.8

Mar-16

Dec-15

Sep-15

Jun-15

Mar-15

Dec-14

Sep-14

Jun-14

Mar-14

Dec-13

Sep-13

Apr-Aug FY17

Jun-13

Apr-Aug FY16

-2.9

Mar-13

Apr-Aug FY15

-5

Dec-12

0

1.8

Sep-12

50

0

Jun-12

100

Jun-16

150

Rural wage growth:Real ( % yoy)

Source: Spark Capital Research

Page 9

(A) AGRI AND RURAL INDIA – FARMERS’ INCOME VOLATILITY TO REDUCE

Strategy

#7: Farm mechanization and use of Agro chemicals are gaining momentum #1: Availability of labour is a perennial issue as most labourers prefer non-farm work as it pays more wages vs. agri wages Labourers working at a brick factory in UP

#2: Farm mechanisation is the next big thing as old methods require more labour, which has become expensive now

Why agri sector to continue to face labour shortage?

Farmer’s word “I will buy an engine driven cultivator because it will require only one person vs. two now. I have to ask my son to bunk college when I have to do this work” VST Tillers can be a good bet on this theme.

This family of five members earn Rs 400 per day per person at a brick factory i.e. Rs. 60,000 per month, which is not possible if they work as Agri wagers due to lower wages and lack of regular work. Source: Spark Capital Research

#3: A farmer using VST Tillers to prepare the field for paddy plantation in Maharashtra

Source: Spark Capital Research

Source: Spark Capital Research

#4: Use of Agro chemicals is also catching momentum as awareness is increasing and farmers want to increase productivity

Source: Spark Capital Research

Page 10

(B) GOVT INFRA SPEND IS GOING ON IN FULL SWING

Strategy

#1: City infra development, roads, flyover, metro projects are driving the Govt capex across India #1: City infra development: New flyovers, metro projects, widening of the roads etc. are under way in TN, UP, Maharashtra & Gujarat

#2: In UP, total capex on roads & bridges at Rs 391bn during FY14FY16 is higher than the combined capex in the previous ten years UP Govt spend on road & bridges

150

145 120 90

Capex on roads & bridges in FY04-FY13 = Rs. 386bn 99

60

64 44

30 31 0

147

Capex on roads & bridges in FY14-FY16 = Rs 391bn

43

49

41

46

46

12 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

Roads and Bridges (Rs. bn) Source: Spark Capital Research

#3: In all the states we visited road infrastructure is in very good shape (1. Road in UP, 2. Road construction work in Gujarat) “Never felt so good travelling through UP by roads”

Source: Spark Capital Research

Interaction with a large cement dealer I.

Cement volume growth in Maharashtra is low vs. rest of India. Every player in Maharashtra is playing the market share game, hence prices are low. Cement prices are down to Rs. 220-250 per bag from Rs 250-280 per bag some time back. But the minimum survival price is Rs 280.

II.

Despite Maharashtra being weak, Pan India cement volume to grow at least at 8% in FY17. YTD FY17 cement volume is around 6%, so minimum 11% growth in cement volume will be there in remaining fiscal. “In fact, we are already feeling the heat in the month of Aug and are unable to meet the demand.”

III.

The impact of monsoon is very high on cement demand. Historically, in a good monsoon year, cement volume has been min 3% higher than the nominal GDP growth.

Source: Spark Capital Research

Page 11

(B) GOVT INFRA SPEND IS GOING ON IN FULL SWING

Strategy

#2: Push on plan exp: Focus on rural, urban and road development in Q1FY17 Government’s clear focus is to push capex

Govt capex on the rise: Govt spent 36% of the full year target in Apr-Jul FY17, the highest ever spend in the first 4 months of any fiscal year

Absolute (Rs. tn) (%, yoy)

Growth (%, yoy)

FY17BE Apr-Jul FY17 FY16RE FY17BE Apr-Jul FY17

Total Expenditure

19.8

- Non-plan

14.3

6.6

7.3

4.6

8.9

10.8 9.2

Govt spent 36% of the full yeat target in AprJul FY17, the highest ever spend in the first 4 months of any fiscal year

36.0

36 33.1

33.0

34

9.3

32 29.2

3.6

-- Non-plan revenue

13.3

4.3

9.3

9.5

5.0

-- Non-plan capital

1.0

0.3

4.2

5.4

-13.3

- Plan

5.5

2.0

3.1

15.3

25.3

-- Plan revenue

4.0

1.6

-6.3

20.5

47.2

-- Plan capital

1.5

0.4

35.4

2.9

-19.7

38

26.8 27.1

25.8 23.7

29.0 27.6

30

28.5

27.1 27.6

28 26

22.9

23.2

24 22 20

Plan exp on rural development

FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Plan expenditure in Apr-Jul FY17 (% of full fiscal)

Plan exp on urban development

Plan exp on road and highways 272.0 271.6

404.2

134.8

350.4 295.6 259.8

258.9

277.8 270.7 53.5

219.0 188.5

FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Ministry of Rural Development (Apr-Jul, Rs bn) Source: CGA, Spark Capital Research

25.2 12.0

103.7

94.7 57.0 52.8 50.0

61.9

78.0

13.8 6.5 12.2 10.0 11.1

FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Ministry of Urban Development (Apr-Jul, Rs bn) Source: CGA, Spark Capital Research

FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Ministry of Road Transport and Highways (Apr-Jul, Rs… Source: CGA, Spark Capital Research

Page 12

(B) GOVT INFRA SPEND IS GOING ON IN FULL SWING

Strategy

#3: Both central and state government spending on infra with a renewed focus Importance to develop Industrial corridors, expressways , smart cities is seen across major states. Construction of flyovers, outer ring roads and industrial corridors are seen across states like Maharashtra, Tamil Nadu and Uttar Pradesh. About a fifth of total scheme outlay to upgrade power distribution of nearly Rs. 77,000 crore has been sanctioned, this is 42% of the total amount spent in 2008-2014. Rs. 50,000 cr for 500 cities has been allotted.

Gujarat

Maharashtra Infra projects in Mumbai totalling Rs.73,367 to be launched in CY2016. Some key projects are: Mumbai Coastal Road Rs. 13,000 cr, Mumbai Trans Harbour Link (MTHL) – Rs. 11,500 cr, Mumbai Metro Phase III Rs. 23,136 cr. 18.5-km Dahisar to DN Nagar – Rs. 4,994 cr. 16.5-km Dahisar east to Andheri east Rs. 4,737 cr. Navi Mumbai International Airport Rs. 16,000 cr.

Four road projects worth Rs. 2,640 crore have been awarded. To connect important religious and tourist places between Bhavnagar and Somnath in Gujarat GVK Bagodara Vasad Expressway has undertaken the development work of 611.4 lane km Bagodara-Vasad.

p

Second Gujarat State Highway Project (GSHP II) is in progress

Uttar Pradesh

Tamil Nadu

Rs. 1,500 cr expressway project between Kanpur and Lucknow in Uttar Pradesh. Government has planned at least Rs. 2 lakh cr. projects of which work on about Rs. 70,000 cr. projects is underway in roadways.

Kovai- Erode-Salem- Industrial Corridor is under progress. The government has sanctioned Rs. 45,000 cr. totally of which Rs. 11,000 cr. will be spent on roads.

Three recently launched projects to be completed by 2018; Rs. 806 cr. Varanasi-Jaunpur stretch on National Highway No 56, Rs. 785 cr. Varanasi-Ajamgarh stretch on National Highway No 233 and Rs. 868 cr. Varanasi-Gazipur stretch on NH 29.

Spend on civic infrastructure in the past 5 years has more than doubled to Rs. 3,455 cr. compared to the previous corporation council’s Rs.1,665 cr. Centre has sanctioned the construction of Enayam port at a cost of Rs. 27,500 cr. in Kanyakumari.

Page 13

(C) MICRO, SMALL & MEDIUM ENTERPRISES STILL STRUGGLING FOR GROWTH

Strategy

#1: SMEs related to PVs seeing pick up in business while textile related SMEs having a difficult time Firing on all cylinders- auto ancillary units in India

Auto ancillaries related to PVs in TN and Maharashtra are working 3 shifts a day and running at ~100% utilization rates

Auto ancillary units catering to PVs have order book filled up for next 12 months. FY15 saw a 100% jump in top line after which it has moderated in those levels Zero NPA Regions: Auto ancillary hubs across the state have become zero NPA regions! Zero clarity on GST, Credit period squeeze from clients and delay in cash flow in government projects are the general issues faced by these units. Source: Spark Capital Research

Source: Spark Capital Research

Textile industry is in doldrums led by fluctuating raw material prices, increasing labour cost, cheaper imports & pollution norms Both in Surat and Tirupur regions

Auto sector related SMEs doing well

The passenger vehicle OEMs are running at 80% to 90% capacity utilisation with adequate financing availability from banks.

SMEs related to leather industry

In a major slump. Poor order book, increasing labour cost, credit squeeze from clients and lack of financing options has made survival difficult

SMEs in Textile industry

Surat: Textile sector is very weak. No demand. Banks have stopped financing for textile machinery. Tamil Nadu: Local demand is keeping them in business.

Source: Spark Capital Research

Page 14

(C) MICRO, SMALL & MEDIUM ENTERPRISES STILL STRUGGLING FOR GROWTH

Strategy

#2: Fall in exports is the key reason for weak demand in MSME sector ...a sharp decline in exports is the key reason for poor performance of the MSME sector in last 2 years

Performance of the MSME sector highly depends on exports... MSME’s contribution to GDP

40

8%

30 20

Contribution to India’s manufacturing output

45%

10 0

Contribution to India’s total exports

40%

-8.7

-10

FY16

FY15

FY14

FY13

FY12

FY11

FY10

FY09

FY08

FY07

FY06

FY05

FY04

FY03

Total number of unites

FY02

36 mn

FY01

-20

Non-oil exports growth (%, yoy) Source: Spark Capital Research

Source: Spark Capital Research

Most MSMEs are running at 50-60% capacity utilization in all industrial belts we visited in Maharashtra, Gujarat, TN and UP

... Manufacturing sector growth continues to remain a drag 8 6 4

2 0 -0.7

-2

Jun-16

Mar-16

Dec-15

Sep-15

Jun-15

Mar-15

Dec-14

Sep-14

Jun-14

Mar-14

Dec-13

Sep-13

Jun-13

Mar-13

Dec-12

Sep-12

Jun-12

-4

Manufacturing growth (%, yoy, 3MMA) Source: Spark Capital Research

Source: Spark Capital Research

Page 15

(C) MICRO, SMALL & MEDIUM ENTERPRISES STILL STRUGGLING FOR GROWTH

Strategy

#3: Financing is still an issue but things are improving as pvt sector banks and NBFCs try to tap the market Financing is still an issue but it’s improving

Due to lack of credible track record, most SMEs still face financing issues. However, interest from the private sector banks and NBFCs, the situation is gradually improving

Credit period squeeze from clients and delay in cash flow

One SME player in Power segment told, “L&T has increased the payment cycle from 45days earlier to 180 days”

Pvt sector banks trying to tap quality SMEs:

Gold loan is dominant in micro players

Banks capitalising on this golden opportunity knowing micro entrepreneur’s preference for gold loans

A lot of SMEs are changing their banks to pvt banks like HDFC bank etc. from cooperative banks due to good service and low interest

Banks capitalising on this golden opportunity knowing micro entrepreneur’s preference for gold loans

Source: Spark Capital Research

Government’s push to propel the MSMEs through PSU banks is observed pan India

The definition of MSME is likely to be changed to higher limits in the new MSME policy, which is expected in 2017 Current classification

Proposed classification

Investment limit in Plant & Machinery (Rs. mn)

Investment limit in Plant & Machinery (Rs. mn)

Micro

< 2.5

<5

Small

Above 2.5 to 50

Above 5 to 100

Medium

Above 50 to 100

Above 100 to 300

Source: Spark Capital Research

Page 16

(D): DEEPENING SLOWDOWN IN REAL ESTATE; NOW EVIDENT IN SMALLER CITIES TOO

Strategy

#1: Developers and banks are trying to woo customers: Massive subvention schemes are on offer Real state slowdown was a common theme across all places we visited including Tier 2-3 cities. I.

Gujarat: In Surat, “Earlier people made money in diamond and textiles business and put that money in real estate. Now both the businesses are down. So there is no demand for real estate now.” In Ahmedabad, “Real estate deals have come to a sudden halt”.

II.

Tamilnadu: In Coimbatore, a leading private constructor says that he has not sold any apartment for last 6 months. In Erode: Builder said, “Even after lowering the profit to just Rs. 200/sq. ft, he is unable to sell.”

III.

Maharashtra: In Pune, “Real estate is not doing well. There is huge unsold inventory, which will take at least 1.5 to 2 years to clear if things do not deteriorate from here.”

IV.

UP: Sights of unsold inventory at the brick factory in UP, which indicates that housing construction is weak in rural India as well

20:80 scheme a passé: Developers are offering subvention schemes like ‘pay 5% or 10% now and remaining on possession’ Mumbai

Chennai

Source: Spark Capital Research

(1) Sights of unsold inventory at the brick factory in UP, (2) Work stopped in an under construction building in Ahmedabad Ahmedabad Saharanpur, UP

Source: Spark Capital Research

Banks are facing low demand for housing loans and are waiving off processing charges and offering competitive interest rates

Source: Spark Capital Research

Page 17

(D): DEEPENING SLOWDOWN IN REAL ESTATE; NOW EVIDENT IN SMALLER CITIES TOO

Strategy

#2: Higher unsold inventory and no demand but a meaningful price correction yet to be seen barring NCR Delhi NCR and Bangalore saw steep increase in unsold inventory levels in last 1 year 300

Most of the markets will take at least 2-3 years to clear the existing unsold inventory in all major cities 80 70 60 50 40 30 20 10 0

All market saw some decline in unsold inventory due to very few new launches in last quarters

250 250 200 150 98 100

66

60

58

Bangalore

Chennai

Ahmedabad

71

32

32

25

24

24

21

50 -

Mumbai-MMR

Unsold housing inventory (units, in '000)

No. of months required to clear the unsold inventory

Source: Spark Capital Research

Source: JLL, Spark Capital Research

Others, 6%

IT professional, 28%

NRI, 11%

Businessman, 22%

Non IT professional, 33%

...because (1) lot of IT companies are considering trimming this mid management layer and (2) onsite opportunities are declining 15 yrs +

IT sector experience wise breakup

IT industry and NRIs together account for ~ 40% of the total residential property demand, which is at risk now...

Offshore

Onshore

24% 41% 67

70

75

30%

33

30

25

2015

2005

2010

2015

62%

73% 54%

2005 Source: Industry sources, Spark Capital Research

5-15 yrs

(%)

Delhi-NCR

2010

Source: Industry sources, Spark Capital Research

Page 18

(E): WEAK FREIGHT DEMAND LEADS TO POOR MHCV SALES

Strategy

MHCVs: Lacking fuel to move ahead

MHCV slump

The MHCV industry in Tamil Nadu is in a big slump reflecting poor order flows in the textile industry cluster of Tirupur, Erode and Coimbatore,.

Surge in cost of transportation

Increase in cost of transportation by ~8%, increase in labour cost, increase in toll rates, introduction of green tax in certain states have resulted in surge in transportation cost

Other indicators suggest a slump in MHCVs too

Indicators like poor business in petrol bunks compared to the previous year, slump in the lorry bodybuilding business etc., indicate a slowdown in the MHCV industry in South.

Cement related businesses doing well

One green shoot is that the tippers that transport cement across states are doing well and are doing good

Running just for survival: Truck operator in Tamil Nadu tells the sudden drop in freight demand in last few months

1.

“Increase in diesel rates does not get transmitted in freight due to excess supply of lorries and poor demand.”

2.

“It has become difficult to get trips and we are just running to pay back our EMIs.”

Source: Spark Capital Research

Poor businesses to Lorry body builders, poor utilisation rates of lorry fleets in lorry associations, poor businesses in major petrol bunks and stagnant MHCV proportion in toll traffic indicates a big slowdown in the MHCV segment in Tamil Nadu, Gujarat and Maharashtra

Source: Spark Capital Research

Page 19

(F): PATANJALI’S PRODUCTS ARE POPULAR BUT IT’S MORE OF A URBAN PHENOMENA

Strategy

Biscuit, hair oil, toothpaste, shampoo, honey, chamanpras etc. are the most popular categories #1: ‘Shops having Patanjali’s hoarding’ in all the cities we visited, but it’s not there in rural India

Source: Spark Capital Research

#3: Toothpaste, hair oil, chamanpras, honey, biscuit are the key categories where Patanjali has gained market share

Source: Spark Capital Research

#2: Patanjali is opening mega-stores in big cities across India; This one is a recently opened mega store in Pune

Source: Spark Capital Research

#4: Not significant demand in rural areas because people procure a lot of things like ghee, aata etc from the field

Source: Company sources, Spark Capital Research

Page 20

(G): TRANSITIONAL WAVE UNDER WAY IN AUTOMOBILES

Strategy

Bicycle to Bike and Bike to Car #1: Bicycle to Bike transition - A hawker was selling vegetables on Hero Splendor iSmart; he bought it last year, upgrading from bicycle

#2: Two wheelers have become the most common vehicle of daily commuting in rural India; A farmer putting fodder on his bike in TN

New thinking!

Hero No. 1

When we asked him on the viability of selling vegetables on bike, he replied, “it takes only Rs. 30 petrol per day and I make more money because I cover more number villages and carry more variety of vegetables”. He bought it by making cash payment.

Hero is the most trusted brand in the two wheelers category

Source: Spark Capital Research

#3: A lot of people still use bicycle and old scooter for commuting – Bicycle to Bike transition is likely to continue

Key reasons Good resale value, low maintenance, availability of auto parts and services Source: Spark Capital Research

#4: People upgrading to 4 wheelers: People, who can’t afford a new car, ARE buying a used car; First Choice is expanding its reach Booming resale market People, who cannot afford a new car, are buying a used car to fulfil their ambitions Mahindra First Choice is expanding the reach in semi urban areas in the region

Source: Spark Capital Research

Source: Spark Capital Research

Page 21

(H): UP ASSEMBLY ELECTIONS – WHAT’S IN STORE

Strategy

Equation is completely open currently and the outlook would depend on what kind of alliances are formed Uttar Pradesh - An Overview: I.

Vote Share in Past Legislative Assembly Elections

UP has always been the impregnable forte of these two regional parties – BSP and SP. But made history by winning in 90% of the constituencies in UP (71 out of 78) in 2014 General Election

Major Parties

2012

2007

2002

II.

Poor Law and order conditions in the state would go against the ruling SP though people have noted the good work done in roads

SP

29%

25%

25%

III.

The SC and OBC so called Dalit vote bank will go with Mayavati and if she manages to swing some vote share from upper casts and minority community by giving tickets to upper cast candidates and minority candidates, it can be a winning formula for BSP

BSP

26%

30%

23%

BJP

15%

17%

20%

INC

13%

9%

9%

CPM

2%

0%

0%

IV.

V.

BJP will have a difficult time in UP assembly election due to the absence of a face for Chief Minister Candidate. They need to project a face for Chief Minister Candidate. Equation is completely open currently and the outlook would depend on what kind of alliances are formed; if BJP forms an alliance with RJD, it can win them majority of the seats in Western UP

#1: Vote share analysis in UP in last Lok Sabha Elections in 2014; but assembly election and General election are very different Indian National Congress 8%

#2: BJP made history by winning in 90% of the constituencies in UP (71 out of 78) in 2014 General Election 80 2014 Seats won, 71

Others 1%

70

60 Bahujan Samaj Party 21%

Bharatiya Janata Party 46%

35

50

2004 Seats won, 11

26 20

19

23

40

2009 Seats won, 10

30 20

9 Samajwadi Party 24%

2

10 0

2004 Seats won Bharatiya Janata Party

Source: Spark Capital Research

0

5

2009 Seats won Samajwadi Party

Bahujan Samaj Party

2014 Seats won Indian National Congress

Source: Spark Capital Research

Page 22

Portfolio Strategy

Page 23

Spark Model Portfolio

Strategy

Portfolio construct biased towards domestic cyclical recovery in growth

Macro environment stability. CPI inflation to remain contained in 4.5-5.5% range in FY17E; WPI to head towards 5% by June 2017E Scope for further 25bps rate cut. FY17 to see faster transmission and better liquidity due to lower Govt. cash balances with RBI to drive reverse repo to become operative rate; Yield curve to steepen up Real deposit growth trending well. Gold imports and new home launches remain muted; Quality of savings getting better with shift to financial from physical

CAD healthy till crude oil is <$60/bbl; Bond yield differentials well above inflation differentials and Earnings showing improvement - Bond and equity outflows unlikely; INR fundamentals remain strong Central Govt. spending thrust continues; Roads, rural & urban development, and railways show positive trends YTD FY17 also; Pay Commission impact to play out; High Govt spend in FY16 to show multiplier effect in FY17 March and June quarters results saw more beats to estimates than misses to estimates; FY17 & FY18 Earnings upgrade cycle has started esp. in cyclicals

Rural recovery is taking clear shape - the derived effect of multiple drivers at work. Not just good monsoon. Govt. policies being most important

State Government spend – A material ‘under the radar’ evolving theme; Higher allocation for urban spend, water, rural, agri, irrigation related spend

#1. Retain Overweight stance on select Banks; Avoid costly NBFCs/ SFBs Consumer & working capital asset biased; SME banks for NPA improvement; Wholesale liability dependent banks. #2. Retain Overweight stance on Infra/ Industrials Central and State Govt. policy & higher spend driven direct and indirect proxies on roads, railways, cement, urban & rural infra and EPC contractors; Also interest rate sensitives. #3. Overweight – Automobiles & Discretionary Consumption Domestic centric 4 & 2 wheeler companies – rural and urban. Durables, apparels and lifestyle led. DFC to start partial ops. #4. Underweight IT, Pharma, Oil & Gas. Lower downside risk than upside drives stock picks. #5. What to Avoid. Project finance biased banks, companies vulnerable to real estate & gold prices, consumer staples and pvt sector capex biased companies.

Page 24

Spark Model Portfolio

Strategy

Model Portfolio and key changes BSE Spark Mcap 200 Weight Weights (Rs. bn) s Financials OW 28.5% 33.0% HDFC Bank 7.0% 3,286 IndusInd Bank 5.0% 697 Kotak Mahindra Bank 4.0% 1,480 Yes Bank 4.0% 492 Federal Bank 4.0% 124 State Bank of India 3.0% 1,974 City Union Bank 3.0% 79 Karur Vysya Bank 3.0% 56 Infrastructure OW 10.3% 23.0% Ultratech Cement 4.0% 1,077 Cummins India 4.0% 255 Ramco Cements 3.0% 140 Sadbhav Engineering 3.0% 52 Techno Electric 3.0% 36 Elgi Equipment 2.0% 31 VA Tech Wabag 2.0% 30 KNR Constructions 2.0% 20 Company

Consumer & Media Zee Entertainment Berger Paints Voltas Whirlpool Arvind Wonderla Holidays Auto & Logistics Maruti Suzuki Hero Motocorp Container Corp Exide Industries Timken India Oil & Gas Petronet LNG Healthcare Aurobindo Pharma Information Technology Infosys Cash & Others Total

View

OW

OW

13.8%

11.8%

6M ATV CMP

1Y Price (Rs. mn) return

Spark Model Portfolio vs. BSE 200 FY16-18E CAGR

1,298 1,170 807 1,170 72 254 132 467

1,737 1,471 1,449 4,091 500 5,257 59 78

24% 27% 23% 52% 15% 5% 50% 1%

EBITDA 21% 28% 29% 30% 18% 14% 11% 10%

PAT 21% 33% 39% 31% 50% 49% 17% 18%

3,924 921 587 302 313 193 552 700

984 310 135 49 17 9 66 14

34% -17% 85% 6% 21% 54% -21% 32%

22% 16% 12% 40% 25% 27% 21% 29%

30% 13% 19% NA 30% 53% 35% -7%

499 258 125 121 86 22

519 266 379 951 331 395

880 129 604 38 601 30

30% 67% 51% 49% 17% 44%

25% 22% 26% 22% 19% 40%

25% 31% 17% 26% 33% 21%

1,684 717 253 164 37

5,573 3,589 1,300 193 547

3,646 1,371 277 443 20

27% 48% -8% 31% -5%

14% 13% 19% 12% 30%

29% 13% 19% 11% 33%

250

334

428

87%

26%

32%

17.0% 3.0% 3.0% 3.0% 3.0% 3.0% 2.0% 16..0% 4.0% 4.0% 3.0% 3.0% 2.0% 4.0% 4.0% 2.0% 2.0%

UW

7.9%

UW

7.8%

UW

11.0%

2.0%

8.8%

2.0% 3.0% 100.00%

FY18E P/ABV 3.3 3 3.5 2.5 1.4 1.1 2.1 1.1 EV/EBITDA 16.2 24.6 11.1 8.6 10.9 14.5 10.4 9.2

KEY INVESTMENT RATIONALE CP – Core Portfolio; TI – Tactical Idea Growth, best in class, CP Growth, consumption proxy, CP Growth, quality retail book, CP Growth, yield curve proxy, TI Value, turnaround, Mgt changes, CP Value, macro proxy, NPA delta, TI Growth, Quality, SME focus, CP Value, Turnaround, SME focus, CP Growth, Govt. capex beneficiary, TI Growth, Govt. capex beneficiary, CP Growth, Govt, capex esp. AP TL, CP Growth, Govt. road capex, fin lev, TI Growth, PGCIL SEB capex delta, CP Growth, cyclical capex proxy, CP Growth, States capex, TI Growth, road spend, TI

P/E

459

785

1,445

11%

19%

19%

30.3 40.9 23.8 31.5 13.1 25.6 P/E 22.2 17.7 22.8 21.4 22.5 EV/EBITDA 9.9 P/E 15.7

Growth, disc cons, ad spend inc, CP Growth, deco paints, margin exp, CP Growth, AC story, Pay Comm, TI Growth, durables, Pay Comm, CP Growth, brands, opg & fin lev, CP Growth, disc. cons, CP Growth, prem PVs, Pay Comm, CP Growth, rural recovery, CP Growth, DFC proxy, CP Value in earnings, Turnaround, TI Growth, DFC proxy, CP Growth, Macro, LNG vols inc, TI Growth, less FDA risks, TI

P/E 2,435

1,060

4,382

-4%

14%

10%

14.7

Value, Dividend yield, CP

135.3%

10.6% 9.2%

25.1% 22.1% 18.4% 13.2%

3M

6M

41.1% 15.8%

1 yr 2yr Spark BSE 200

66.6%

Since Oct'13

Model Portfolio Changes Sector Wts Prev. Wts Delta Current Wts Financials 33.0% 0.0% 33.0% Healthcare 4.0% -2.0% 2.0% IT 2.0% 0.0% 2.0% Oil & Gas 4.0% 0.0% 4.0% Consumer & Media 15.0% 2.0% 17.0% Autos & Logistics 16.0% 0.0% 16.0% Infrastructure 21.0% 2.0% 23.0% Cash & Others 5.0% -2.0% 3.0% Stock Wts Prev. Wts Delta Current Wts Kotak Mahindra 5.0% -1.0% 4.0% Yes Bank 6.0% -2.0% 4.0% Cummins India 3.0% +1.0% 4.0% Stocks Changes In / Out Weights Petronet LNG In 4.0% SBI In 3.0% Container Corp In 3.0% Zee Entertainment In 3.0% Berger Paints In 3.0% Techno Electric In 3.0% Whirpool In 3.0% Elgi Equipment In 2.0% Infosys In 2.0% Asian Paints Out 4.0% Coal India Out 4.0% Bata Out 3.0% Eicher Motors Out 3.0% Wipro Out 2.0% BPCL Out 2.0% Sun Pharma Out 2.0% GSPL Out 2.0% Kaveri Seed Out 2.0% Top Sells NIFTY HDFC Axis Bank Bank of Baroda Cipla Lupin BHEL HCL Tech TCS

Large Midcaps Mahindra Finance Shriram Transport Glenmark Mindtree TVS Motors Thermax Crompton Greaves Havell’s

Page 25

Valuation Summary

Company Name Auto Amararja Batteries Ltd Ashok Leyland Ltd Apollo Tyres Ltd Bajaj Auto Ltd Bharat Forge Ltd Eicher Motors Ltd Exide Industries Ltd Hero Motocorp Ltd Igarashi Motors India Ltd Mahindra & Mahindra Ltd Maruti Suzuki India Ltd NRB Bearings Ltd Ramkrishna Forgings Ltd Suprajit Engineering Ltd SKF India Ltd Tata Motors Ltd Timken India Ltd TVS Motor Company Ltd WABCO India Ltd VSTTillers Tractors Ltd

CMP

1,003 81 213 2,982 875 23,135 193 3,589 723 1412 5,573 129 381 218 1,430 549 547 338 6,185 1,879

Strategy

Mkt Net Sales (Rs. bn) Cap (Rs. bn) FY16 FY17E FY18E 171 46.9 56.0 66.9 231 188.2 221.9 258.2 109 117.8 134.6 145.5 863 226.2 248.6 271.6 204 76.5 77.1 92.5 628 156.9 159.8 198.7 164 68.2 73.8 82.6 717 285.4 324.7 367.6 22 4.4 5.4 6.4 878 408.8 443.5 487.3 1,684 577.0 675.3 775.4 13 6.6 7.6 8.7 11 9.0 10.6 13.5 29 6.9 8.3 10.2 75 29.9 26.4 30.6 1,763 2,677.0 2,817.6 3,259.9 37 10.6 12.7 16.6 161 112.1 132.2 146.0 117 18.4 24.2 29.8 16 6.5 7.4 8.4

EBITDA (Rs. bn)

Net Profit (Rs. bn)

ROE (%)

EV/EBITDA (x) TP

FY16

FY17E FY18E

FY16

FY17E FY18E

FY16

FY17E FY18E

8.2 21.7 19.7 47.8 14.2 24.5 10.3 44.6 1.1 45.7 89.6 1.0 1.8 1.1 3.6 343.8 1.6 7.7 3.0 1.1

9.9 26.0 21.4 51.0 14.0 30.0 11.4 50.4 1.3 54.1 99.8 1.3 2.1 1.4 3.5 371.8 2.0 10.0 4.4 1.3

12.0 29.3 23.1 55.7 17.5 38.4 12.9 57.0 1.4 59.4 116.3 1.5 2.7 1.7 4.1 450.7 2.7 11.7 5.4 1.5

4.9 11.1 11.1 37.3 6.5 12.8 6.2 31.5 0.6 32.4 45.9 0.4 0.5 0.6 2.6 129.8 0.9 4.4 2.2 0.7

6.0 14.2 11.6 42.3 6.7 16.8 6.8 36.2 0.8 37.4 60.0 0.6 0.7 0.8 2.7 132.9 1.2 5.9 3.0 0.9

7.4 16.6 11.7 46.9 9.0 21.7 7.7 40.5 0.9 40.5 75.9 0.7 1.1 1.1 3.3 155.9 1.7 7.1 3.9 1.0

25.8 20.9 20.1 32.5 18.4 42.5 14.7 43.5 23.3 15..8 18.1 15.0 12.4 17.5 17.2 21.1 19.5 24.7 22.5 18.9

25.6 23.5 17.7 31.4 17.7 40.7 14.6 41.0 24.7 16.3 20.6 18.6 13.1 17.6 16.4 18.4 21.2 27.2 25.5 19.1

6.1 2.6 -19.6 2.1 4.2 4.9 1.4 8.6 8.1 6.8 7.6 2.4 2.2 4.5 1.7 2.3 1.8 4.4 1.8 3.8

6.4 2.9 21.9 2.5 5.1 5.8 1.8 10.2 8.8 7.9 8.4 3.1 2.9 4.3 2.1 2.7 2.2 5.7 2.1 4.7

7.4 3.1 31.4 3.4 5.7 7.5 2.2 11.5 10.3 9.3 10.3 3.8 3.5 4.8 2.6 3.3 2.7 6.9 2.4 5.7

4.2 1.0 -9.1 1.1 2.3 0.7 0.6 4.9 1.2 1.9 7.5 1.4 1.4 2.8 1.1 0.9 1.1 3.9 1.1 2.4

4.4 1.2 15.5 1.3 2.9 2.4 1.1 6.5 1.9 2.7 8.1 2.1 1.9 3.1 1.3 1.3 1.5 4.7 1.3 3.1

5.0 1.4 22.3 2.0 3.4 3.5 1.5 7.6 2.8 3.5 9.7 2.6 2.4 3.6 1.7 1.7 1.8 5.3 1.5 3.8

19.4 13.3 -2.7 20.9 101.0 1.8 13.1 27.9 3.7 13.5 24.8 11.9 12.1 10.8 42.4 9.8 26.3 15.6 17.3 23.8

18.0 15.5 4.6 20.7 85.9 6.1 20.0 35.8 6.6 17.0 24.4 13.9 17.1 11.3 41.1 12.5 28.7 17.6 17.1 23.8

Capital Goods & Engineering AIA Engineering Ltd Bajaj Electricals Ltd Bharat Heavy Electricals Ltd Blue Star Ltd Crompton Greaves Consumer Ele Crompton Greaves Ltd Elgi Equipments Ltd Havells India Ltd Kalpataru Power Transmission Ltd KEC International Ltd Cummins India Ltd Kirloskar Oil Engines Ltd Techno Electric & Engineering Thermax Ltd Triveni Turbine Ltd VA Tech Wabag Ltd V-Guard Industries Ltd Voltas Ltd TTK Prestige Ltd Whirlpool of India Ltd

P/E (x)

25.6 22.9 15.4 29.5 21.1 38.5 15.0 37.4 23.6 15.4 22.4 22.1 18.4 19.4 17.5 18.5 24.1 26.0 25.9 19.2

FY16

FY17E FY18E

FY16

Rating

FY17E FY18E

Mukesh Saraf | +91 44 4344 0041 | [email protected] 35.0 28.6 23.2 21.1 17.4 14.3 975 Buy 20.6 16.0 13.7 11.0 8.7 7.5 121 Buy 9.8 9.3 9.3 6.1 6.4 6.1 195 Buy 23.1 20.4 18.4 16.3 17.2 15.7 2,745 Add 31.7 30.7 22.7 15.9 15.4 12.1 735 Sell 49.1 37.4 29.0 25.0 20.5 15.4 22,995 Reduce 26.4 24.2 21.4 15.8 14.1 12.6 142 Reduce 22.8 19.8 17.7 15.2 13.3 11.4 3,550 Add 34.8 27.8 24.6 21.1 17.2 15.4 750 Buy 26.8 23.3 21.5 16.8 14.0 12.4 1360 Reduce 36.7 28.1 22.2 17.1 15.0 12.5 5,025 Buy 29.8 22.3 17.1 15.0 11.7 9.7 136 Buy 19.9 16.7 10.2 11.0 9.3 7.3 485 Buy 44.6 34.7 26.9 26.3 21.6 17.3 203 Reduce 29.4 27.7 23.1 19.1 19.0 15.5 1,300 Sell 14.4 14.0 11.9 7.4 6.8 5.6 490 Buy 39.6 30.7 22.5 22.9 18.3 13.5 610 Buy 36.3 27.1 22.7 22.1 16.7 13.9 235 Sell 54.3 38.5 29.8 37.8 26.3 21.1 6,540 Add 21.9 18.7 16.1 16.9 15.3 13.6 2,000 Add

Vijayaraghavan Swaminathan | +91 44 4344 0022 | [email protected] 1,173 265 147 519 156 81 193 410 268 120 921 300 313 893 122 552 183 379 4,846 951

111 27 359 49 98 51 31 256 41 31 255 43 36 106 40 30 55 125 56 121

21.0 46.1 256.3 38.0 35.9 129.5 14.1 85.5 73.8 85.2 47.2 24.5 11.0 55.0 8.0 25.6 18.6 58.6 15.3 34.9

23.5 51.1 297.2 44.0 41.1 140.3 15.4 92.1 84.0 95.5 50.6 27.2 14.2 48.5 9.6 29.7 21.2 66.7 16.5 39.6

26.9 55.8 350.0 51.7 47.0 152.5 17.6 101.5 96.5 109.1 57.7 30.7 17.8 51.7 11.6 35.1 24.6 76.7 18.5 45.5

18.3 15.7 6.3 26.6 58.6 8.3 23.7 39.0 9.8 19.1 26.7 16.3 18.8 11.9 40.0 14.6 28.1 18.3 18.4 23.0

26.1 28.0 NA 41.8 42.3 74.1 45.1 52.5 34.9 16.1 34.0 26.2 15.4 38.7 37.5 32.6 49.2 36.3 47.6 48.7

25.3 21.6 23.2 33.9 33.4 21.0 26.9 39.1 21.4 11.3 31.6 21.0 19.1 34.1 30.0 23.3 36.5 28.1 43.5 38.4

22.1 18.9 16.1 23.3 28.5 14.6 20.5 33.7 14.5 8.7 26.4 16.6 15.1 30.0 24.1 18.0 30.1 23.8 36.9 31.5

16.9 10.9 NA 23.7 24.3 13.7 24.6 29.9 8.9 8.0 33.1 14.8 17.3 22.0 23.5 14.6 30.8 25.8 30.5 31.7

16.0 9.7 16.1 20.2 20.2 11.9 18.1 25.1 8.4 6.9 30.0 11.5 13.2 22.6 19.0 12.5 24.5 19.4 26.3 25.4

14.0 8.9 11.2 14.7 18.1 9.4 14.5 22.3 7.3 5.9 24.6 9.3 10.9 20.0 15.5 10.4 20.7 15.8 22.8 21.2

1,324 207 109 511 131 65 216 287 314 160 978 321 379 745 140 621 182 392 3,961 1,057

Buy Sell Sell Buy Sell Sell Buy Sell Buy Buy Buy Buy Buy Sell Buy Add Buy Buy Sell Buy

Page 26

Valuation Summary

Company Name

CMP

Cement / Materials ACC Ltd 1,626 Ambuja Cements Ltd 262 Birla Corporation Ltd 639 Dalmia Bharat Enterprises 1,751 India Cements Ltd 150 JK Lakshmi Cement Ltd 470 Madras Cements 587 Prism Cement Ltd 108 Shree Cement Ltd 16,721 Ultratech Cement Ltd 3,924 Orient Cement Ltd 205 IT Services eClerx Services Ltd 1,540 Firstsource Solutions Ltd 44 HCL Technologies Ltd 786 Hexaware Technologies Ltd 201 Infosys Ltd 1,060 Info Edge (India) Ltd 640 Cyient Ltd 463 Intellect Design Arena Ltd 200 Just Dial Ltd 469 MindTree Ltd 512 MCX Ltd 977 Majesco Ltd 477 Mphasis Ltd 519 Persistent Systems Ltd 613 Redington (India) Ltd 111 NIIT Technologies Ltd 409 KPIT Technologies Ltd 132 Oracle Financial Services Softwar 3,371 Tata Consultancy Services Ltd 2,362 Tech Mahindra Ltd 465 TeamLease Services Ltd 1,098 Quess Corp Ltd 549 Wipro Ltd 479 Building Material Kajaria Ceramics Ltd 1,303 Century Plyboards (I) Ltd 229 Somany Ceramics Ltd 591 Cera Sanitaryware Ltd 2,375 Greenply Industries Ltd 271 HSIL Ltd 339

Strategy

Mkt Cap (Rs. bn) 305 521 49 155 46 55 140 54 583 1,077 42

Net Sales (Rs. bn)

EBITDA (Rs. bn)

Net Profit (Rs. bn)

ROE (%)

EV/EBITDA (x) TP

FY16 114.3 93.7 32.3 64.4 42.3 26.2 36.0 56.2 55.7 241.1 15.1

FY17E FY18E

FY17E FY18E

FY16

FY17E FY18E

FY16

FY17E FY18E

11.7 14.4 2.4 15.8 7.7 2.7 10.6 3.8 13.2 46.2 1.8

16.9 19.1 6.4 20.1 9.3 4.9 12.1 6.1 28.0 58.2 2.8

22.8 26.3 9.8 23.1 10.3 7.6 13.3 8.0 34.4 68.5 4.8

5.9 8.1 1.6 1.9 1.4 0.1 5.6 0.0 4.5 21.7 0.6

9.8 13.4 2.8 3.8 2.8 1.2 6.5 1.9 16.6 30.3 0.4

13.9 18.8 3.7 6.1 3.8 3.1 7.9 3.8 22.5 36.8 1.9

7.1 7.9 5.9 5.5 4.1 0.5 19.5 0.3 12.4 11.0 6.2

11.3 12.6 9.9 9.5 8.1 8.9 19.4 17.0 33.9 13.7 4.4

63 13.1 13.9 15.2 30 32.3 36.5 40.5 1,109 311.4 458.4 501.5 61 34.7 37.5 40.9 2,435 624.4 693.0 774.4 104 7.2 8.5 10.2 52 30.8 33.5 37.2 20 8.1 10.0 11.9 33 6.9 7.5 8.5 86 46.7 54.0 59.4 50 2.3 2.6 3.1 11 7.7 9.0 10.2 109 60.9 62.2 66.2 49 23.1 28.3 32.3 44 354.3 412.8 470.3 25 26.8 27.6 29.9 26 32.2 32.5 34.7 286 40.9 44.9 46.6 4,654 1,086.5 1,181.2 1,280.0 452 264.9 288.8 318.4 19 25.2 31.7 39.5 69 34.4 43.3 53.9 1,165 516.3 552.6 591.8

4.9 4.0 68.2 5.3 170.8 1.6 4.3 -0.3 1.7 8.2 0.8 0.1 9.0 4.2 7.7 4.7 4.4 16.6 306.8 43.3 0.3 1.6 111.5

4.7 4.9 100.6 5.6 194.0 2.1 5.0 0.4 1.2 8.7 1.0 0.4 9.5 4.5 7.8 4.5 4.6 19.6 318.3 46.3 0.4 2.3 111.4

5.3 5.5 108.1 6.0 221.7 2.9 5.7 1.0 1.7 9.2 1.4 0.6 10.3 5.5 9.5 4.7 4.7 21.0 329.2 53.6 0.7 3.0 116.8

3.6 2.6 55.7 3.8 134.9 1.5 3.4 -0.2 1.4 5.2 0.4 0.1 6.7 3.0 4.3 0.2 2.9 11.7 242.1 31.2 0.2 0.9 88.9

3.5 3.4 77.7 3.9 146.6 1.6 3.6 0.2 1.3 5.4 1.3 0.2 7.9 3.2 3.9 0.1 2.9 12.7 246.8 33.4 0.4 1.2 87.6

3.9 4.0 83.5 4.2 164.7 2.1 4.2 0.5 1.5 5.8 1.6 0.3 8.2 4.0 5.0 0.1 3.1 13.5 259.5 41.3 0.5 1.7 90.5

40.3 11.7 21.1 25.2 23.2 8.9 18.1 NM 21.1 24.3 3.5 2.5 11.0 19.8 16.5 19.0 21.0 32.7 36.9 23.4 10.8 29.6 20.3

30.6 15.1 25.2 23.9 23.5 8.6 18.2 3.3 17.6 21.7 10.8 6.4 12.0 19.1 13.4 14.9 19.3 33.2 31.6 21.0 11.0 20.4 18.0

4.6 2.8 1.4 1.4 2.5 3.2

5.7 3.2 1.8 1.8 2.8 3.5

6.8 4.2 2.0 2.2 3.2 4.1

2.3 1.7 0.6 0.8 1.1 0.9

2.9 2.0 0.9 1.1 1.3 1.3

3.6 2.5 1.1 1.3 1.4 1.7

27.5 36.7 18.9 21.6 24.0 6.6

28.2 31.6 19.3 23.3 22.8 9.2

24.2 16.6 17.2 9.3 16.5 20.6

122.1 99.4 44.8 79.5 46.5 30.6 40.1 62.2 87.9 269.4 19.4

FY16

140.3 114.2 58.6 91.8 52.5 36.6 45.4 69.3 105.1 306.3 23.5

104 51 25 31 33 25

P/E (x)

27.1 18.7 19.1 10.8 18.4 22.9

31.7 23.1 22.0 12.9 20.6 26.3

FY16

FY17E FY18E

FY16

Rating

FY17E FY18E

Girish Choudhary | +91 44 4344 0021 | [email protected] 15.1 51.7 31.3 22.1 25.0 17.5 13.0 1,575 Reduce 12.1 50.4 30.4 21.8 24.2 18.2 13.6 270 Reduce 12.1 31.3 17.7 13.2 20.3 14.4 9.2 765 Buy 13.5 81.5 40.4 25.6 13.9 10.9 9.2 2,150 Buy 9.9 33.3 16.2 12.2 9.8 7.8 6.9 145 Add 19.8 880.7 45.0 17.8 27.6 15.1 9.6 485 Buy 19.7 25.1 21.4 17.7 15.3 12.9 11.1 575 Add 27.9 1,649.6 28.9 14.4 20.0 12.1 8.9 115 Buy 35.1 128.0 35.0 25.9 43.0 20.5 16.8 18,000 Buy 14.7 49.5 35.6 29.3 24.0 19.1 16.2 3,800 Add 16.9 67.4 93.4 22.5 29.9 19.7 11.6 NA NA Soumitra Chatterjee | +91 22 4228 8151 | [email protected] 31.7 17.6 18.4 16.3 11.7 11.5 10.2 1,226 Sell 17.9 11.5 9.2 7.8 8.0 6.3 5.2 56 Buy 22.7 19.9 14.4 13.5 14.7 9.6 8.5 760 Reduce 24.1 16.2 15.7 14.5 10.9 10.2 9.4 180 Sell 24.9 18.0 16.5 14.7 12.3 10.5 8.9 1,300 Buy 10.2 50.4 48.6 37.5 59.8 46.8 33.9 1,020 Buy 18.4 15.2 14.3 12.5 10.6 8.8 7.3 520 Add 7.6 NA 100.7 41.6 NA 52.1 22.0 285 Buy 17.5 23.5 25.7 22.4 19.4 26.2 18.1 420 Sell 21.8 16.5 16.0 14.8 9.9 9.3 8.7 490 Sell 12.3 118.8 37.5 31.3 46.0 33.4 24.3 780 Sell 8.9 101.5 65.8 43.2 84.1 22.2 13.2 680 Buy 12.0 16.3 13.8 13.2 11.5 11.0 9.9 470 Reduce 21.3 16.5 15.2 12.1 9.7 8.6 6.8 760 Add 15.2 10.4 11.3 8.9 8.0 7.7 6.2 116 Add 16.9 8.9 10.0 7.9 4.4 4.6 3.8 570 Buy 17.8 9.4 9.2 8.7 5.6 5.2 4.5 120 Sell 32.7 24.5 22.5 21.1 16.8 14.0 12.9 3,200 Sell 28.8 19.1 18.8 17.9 14.2 13.4 12.5 2,380 Reduce 21.5 13.3 12.4 10.0 9.5 8.1 6.3 560 Buy 14.0 69.0 51.8 35.9 49.9 30.5 18.3 1,310 Buy 18.1 71.5 55.5 39.7 41.0 25.4 18.7 670 Buy 17.2 13.3 13.5 13.0 9.7 9.9 9.2 540 Reduce Girish Choudhary | +91 44 4344 0021 | [email protected] 28.0 45.2 35.4 28.6 23.0 18.6 15.6 1,390 Buy 31.3 30.4 26.2 20.3 19.6 18.2 13.9 235 Buy 20.1 38.7 27.8 22.6 19.0 15.3 13.2 675 Buy 23.3 37.0 28.6 23.4 22.3 17.1 14.2 2,540 Add 22.1 25.0 21.1 17.6 14.1 12.4 12.0 285 Buy 10.8 27.5 18.6 14.8 9.5 8.7 7.3 270 Reduce

Page 27

Valuation Summary

Company Name

CMP

Strategy

Mkt Cap (Rs. bn)

Net Sales (Rs. bn)

EBITDA (Rs. bn)

Net Profit (Rs. bn)

ROE (%)

P/E (x)

TP FY16

FY17E FY18E

FY16

FY17E FY18E

FY16

FY17E FY18E

FY16

FY17E FY18E

FY16

Consumptions Aditya Birla Fashion and Retail Asian Paint Ltd Arvind Ltd Berger Paint India Ltd Akzo Nobel India Ltd Kansai Nerolac Paints Ltd Pidilite Industries Ltd Page Industries Ltd Kewal Kiran Clothing Ltd Indian Terrain Fashions Ltd La Opala RG Ltd Wonderla Holiday Ltd Relaxo Footwears Ltd Bata India Ltd Titan Company Ltd Bajaj Corp Ltd VIP Industries Britannia Industries Ltd Dabur India Ltd DFM Foods Ltd Manpasand Beverages Ltd Marico Ltd Jyothy Laboratories Ltd Zydus Wellness Ltd Emami Ltd Hindustan Unilever Ltd ITC Ltd

FY17E FY18E

FY16

Rating

FY17E FY18E

Tejash Shah | +91 22 4228 8155 | [email protected] 144 1,155 331 266 1,593 377 715 14,875 1,910 144 546 395 423 526 408 405 127 3,476 293 2,001 709 295 337 900 1,210 912 260

111 1,108 86 258 76 203 366 166 24 5 30 22 51 68 362 60 18 417 515 20 36 381 61 35 275 1,973 3,143

60.2 142.8 83.9 42.1 27.4 38.2 53.7 17.6 4.5 3.3 2.5 2.1 17.0 24.2 112.6 7.9 12.2 85.5 77.6 3.9 5.6 60.1 16.5 4.3 23.9 331.9 365.8

70.4 162.3 96.1 48.3 31.0 42.6 60.1 21.2 5.6 3.7 2.9 3.0 19.0 27.4 129.3 8.6 13.8 96.7 87.9 5.0 8.0 62.5 18.3 4.7 27.7 345.1 400.7

82.3 190.3 111.9 58.0 35.2 48.9 69.0 25.8 6.8 4.3 3.4 3.7 22.2 31.2 151.2 9.9 16.0 111.3 99.0 6.5 10.5 70.9 20.8 5.3 32.6 383.2 441.7

4.0 27.7 10.8 6.5 3.0 5.7 11.8 3.5 1.1 0.4 0.9 0.8 2.4 2.7 9.5 2.7 1.0 12.2 15.2 0.5 1.1 10.5 2.4 0.9 6.8 59.5 137.2

5.6 31.2 12.9 7.9 3.7 6.7 13.4 4.3 1.8 0.5 1.0 1.2 2.9 3.2 12.1 3.0 1.2 13.8 18.5 0.7 1.6 11.6 3.1 1.1 8.0 63.5 153.8

7.1 36.4 15.3 9.7 4.4 7.6 15.0 5.2 1.8 0.6 1.2 1.6 3.4 4.0 14.5 3.4 1.5 16.4 20.8 0.9 2.0 13.1 3.4 1.2 9.5 71.7 173.6

0.3 17.8 3.7 3.7 2.0 3.6 7.6 2.4 0.7 0.3 0.6 0.6 1.2 1.6 7.1 2.3 0.6 8.3 12.5 0.3 0.5 7.2 1.5 1.0 5.4 41.1 93.1

1.3 20.6 4.8 4.8 2.3 4.5 8.6 2.9 1.2 0.3 0.7 0.6 1.6 1.9 8.4 2.6 0.8 9.5 15.2 0.3 0.8 8.3 2.2 1.1 6.0 45.7 107.2

2.2 24.5 6.5 6.3 2.9 5.1 9.8 3.5 1.1 0.4 0.8 0.9 1.9 2.5 10.4 3.0 0.9 11.4 17.2 0.5 1.0 9.5 2.0 1.3 7.5 51.7 120.9

5.7 34.4 12.9 26.7 23.7 18.3 30.0 53.2 20.8 23.0 41.5 15.8 25.1 14.9 21.6 48.1 18.3 55.3 33.3 45.3 12.8 36.9 18.9 23.0 41.2 102.8 29.0

11.8 33.6 15.0 29.9 29.9 18.3 27.8 49.4 32.7 15.9 31.9 15.1 28.6 15.4 22.6 50.0 19.5 46.2 33.1 35.3 11.7 37.3 24.2 22.1 40.1 111.3 30.7

14.6 33.4 18.0 32.4 31.9 18.2 26.4 46.8 26.1 18.3 31.0 18.0 26.6 17.4 24.4 49.0 21.0 41.9 31.1 28.6 11.4 38.0 20.1 22.0 42.5 117.1 31.2

413.5 62.3 23.1 70.0 38.0 57.2 48.3 69.5 34.3 16.0 64.9 37.3 42.2 41.3 50.7 25.5 30.6 50.2 41.2 79.9 65.7 52.7 39.8 34.6 50.6 48.3 34.0

1,682 785 921 388 594 1,343 3,150 913 118 215 1,537 784 479 1,596

201 459 184 397 477 356 522 258 26 18 693 1,886 96 270

49.9 139.0 34.9 98.4 136.8 37.8 154.7 76.5 14.3 5.8 142.1 283.2 11.1 66.8

57.2 161.0 41.9 98.5 154.0 43.5 144.8 95.8 14.3 6.7 175.4 320.8 13.3 62.5

68.6 180.1 48.0 118.4 179.6 49.9 168.0 102.5 16.0 8.6 210.9 368.2 15.9 71.0

8.5 32.1 8.1 23.8 25.0 14.1 39.0 15.3 2.8 0.9 37.5 84.7 3.6 27.2

10.2 39.3 10.4 23.4 27.2 16.2 27.9 23.8 3.1 1.1 46.5 106.3 4.6 17.5

13.2 45.2 12.3 28.5 33.1 19.6 40.5 23.6 3.7 1.4 55.9 118.3 5.6 19.2

6.8 20.5 4.4 15.3 15.1 11.1 24.1 7.9 1.2 0.1 22.7 47.2 2.2 18.6

8.4 25.4 5.7 16.3 16.4 12.2 14.5 14.3 1.5 0.2 27.9 68.8 3.0 11.8

10.3 29.2 6.5 20.0 20.5 14.6 23.9 14.2 2.0 0.3 33.7 78.1 3.6 13.3

20.2 33.5 13.1 31.4 13.3 28.6 16.5 21.8 21.6 2.6 22.9 18.9 23.3 63.4

21.1 30.9 13.6 26.0 13.0 26.2 11.3 28.6 19.7 4.0 22.9 20.2 25.3 31.1

21.5 27.2 14.0 26.0 14.4 26.4 17.8 22.3 21.1 5.5 22.8 19.5 24.8 28.5

29.7 22.4 42.1 26.0 31.7 32.1 22.3 32.3 17.7 250.2 30.7 34.9 43.3 14.5

Pharma Alkem Laboratories Aurobindo Pharma Biocon Ltd Cadila Healthcare Cipla Ltd Divi's Laboratories Dr. Reddy's Laboratories Glenmark Pharmaceuticals Granules India Ltd HealthCare Global Enterprises Lupin Sun Pharmaceutical Industries Syngene International Torrent Pharmaceuticals

EV/EBITDA (x)

86.6 53.7 17.9 53.2 31.9 45.4 42.8 57.4 19.2 19.0 45.5 34.5 32.0 35.1 47.0 23.0 23.9 43.7 33.8 58.8 45.0 45.9 28.0 30.7 45.4 43.2 29.5

50.4 45.3 13.1 40.9 25.9 40.1 37.4 47.4 20.6 14.1 37.8 25.6 26.6 27.5 34.7 20.2 19.5 36.7 30.0 43.2 34.4 40.3 30.3 26.3 36.7 38.1 26.2

31.0 39.3 10.4 39.7 22.9 34.5 30.5 47.2 19.5 14.0 33.8 25.4 21.9 24.4 38.0 20.5 18.3 33.3 32.8 42.4 32.0 35.8 24.4 37.0 40.9 32.6 22.4

21.9 34.7 8.7 32.2 18.8 29.6 26.7 38.9 12.3 12.8 28.4 19.1 17.9 20.7 29.6 18.8 14.6 29.4 26.6 31.1 22.6 32.2 20.0 30.5 34.7 30.5 20.0

17.1 29.6 7.2 26.0 15.8 25.8 23.5 32.1 11.9 9.9 23.6 14.0 15.1 16.4 24.7 16.4 12.1 24.4 23.4 23.0 17.3 28.3 18.5 25.2 28.9 26.8 17.7

191 Buy 1,010 Reduce 349 Buy 252 Add 1,869 Buy 342 Reduce 725 Reduce 14,804 Add 2,398 Add 188 Buy 502 Reduce 454 Buy 500 Add 495 Add 388 Reduce 465 Buy 147 Buy 3,550 Buy 322 Add 1,576 Sell 580 Buy 264 Reduce 322 Add 925 Buy 1,200 Add 942 Add 278 Add

Dr Harith Ahamed | +91-44-4344 0052 | [email protected] 24.1 18.1 32.4 24.4 29.2 29.1 36.1 18.1 13.2 96.9 25.0 27.4 32.2 22.9

19.5 15.7 28.2 19.9 23.4 24.3 21.9 18.1 11.2 65.8 20.6 24.1 26.7 20.3

24.0 15.8 25.2 17.7 20.9 24.7 14.2 19.5 10.9 23.7 20.4 23.2 28.5 10.8

19.9 12.7 19.0 17.6 19.2 21.1 20.6 12.2 9.7 20.5 16.6 17.8 21.3 16.4

15.2 11.0 16.1 14.3 15.5 17.3 14.0 12.1 8.2 16.3 13.4 15.9 17.1 14.5

1,549 Add 900 Buy 900 Buy 352 Add 508 Sell 1,103 Sell 2,875 Reduce 807 Sell 143 Add 280 Buy 1,489 Sell 817 Add 430 Add 1,574 Buy

Page 28

Valuation Summary

Company Name

CMP

Strategy

Mkt Net Sales (Rs. bn) Cap (Rs. bn) FY16 FY17E FY18E

EBITDA (Rs. bn)

Net Profit (Rs. bn)

ROE (%)

P/E (x)

EV/EBITDA (x) TP

FY16

FY17E FY18E

FY16

FY17E FY18E

FY16

FY17E FY18E

Media

FY16

FY17E FY18E

FY16

Rating

FY17E FY18E

Gnanasundar | +91 44 4344 0062 | [email protected]

Sun TV Network Ltd

495

195

25.7

29.1

32.7

17.7

20.1

22.7

9.0

10.6

12.2

26.0

29.1

31.1

21.8

18.4

16.0

10.6

9.3

8.3

556

Buy

Dish TV India Ltd

100

107

30.6

34.8

38.9

10.2

12.2

13.7

2.6

3.3

4.9

761.8

43.2

32.5

41.6

32.3

21.7

11.2

9.1

7.8

122

Buy

Zee Entertainment Enterprises

519

499

58.5

68.5

76.2

15.1

19.1

23.5

10.5

13.4

16.5

27.1

29.5

30.7

47.6

37.2

30.3

31.9

25.2

20.5

549

Buy

Oil & Gas

Vishnu Kumar A S | +91 44 4344 0069 | [email protected]

Oil & Natural Gas Corp

250

2,141

902.0

383.5

363.5

447.9

173.8

142.1

203.4

11.9

9.6

13.4

12.3

15.1

10.5

5.6

5.9

4.8

308

Buy

Indian Oil Corp

570

1,384 3,248.5 3,367.8 3,963.9

233.4

224.3

223.5

116.6

109.2

110.9

18.3

13.5

12.7

11.9

12.7

12.5

7.8

8.1

8.1

579

Add

Bharat Petroleum Corp

578

836 1,495.8 1,487.2 1,862.3

115.3

84.0

80.7

72.5

48.9

45.8

29.0

16.9

14.5

5.8

8.5

9.1

8.2

11.2

11.7

601

Add

Hindustan Petroleum Corp

400

407 1,455.0 1,530.3 1,840.7

82.2

63.9

60.7

41.3

28.0

22.1

22.1

14.0

10.5

3.3

4.8

6.1

7.0

9.0

9.8

311

Sell

Oil India

403

242

98.5

102.9

120.9

37.2

37.7

46.0

24.1

24.1

28.7

11.0

10.5

11.9

10.0

10.0

8.4

8.4

8.3

6.8

503

Buy

GAIL India

388

493

516.1

553.6

571.9

39.7

56.6

62.7

23.0

36.6

38.6

7.7

11.4

10.9

21.4

13.4

12.8

14.5

9.4

8.3

450

Buy

Indraprastha Gas

751

105

36.9

37.9

39.5

7.6

8.2

8.3

4.2

4.6

4.6

18.5

17.5

15.4

25.2

23.1

22.9

12.2

11.1

10.7

660

Sell

Petronet LNG

334

250

322.7

249.4

317.0

17.1

20.2

27.2

9.3

11.2

16.1

15.4

16.5

20.8

27.0

22.4

15.6

16.3

13.4

9.9

340 Reduce

Gujarat Gas Co

637

88

61.2

65.7

68.3

7.1

10.3

11.1

1.8

3.8

4.5

8.7

17.2

17.6

49.5

22.8

19.4

16.0

10.8

9.9

527

Sell

Gujarat State Petronet

153

86

10.2

12.0

12.4

8.7

10.5

10.9

4.4

5.6

5.9

11.7

13.3

12.8

19.4

15.4

14.7

10.8

9.0

8.3

166

Buy

Chennai Petroleum Corp

302

45

276.6

279.5

333.9

19.4

15.1

14.7

13.7

8.5

6.7

58.4

24.6

16.0

3.3

5.3

6.7

4.3

5.5

5.7

190

Sell

86

151

406.0

420.4

500.2

21.4

37.8

36.3

13.1

18.7

18.9

22.8

26.5

21.6

11.5

8.1

8.0

11.1

5.6

5.1

85

Add

60

20.7

18.8

21.1

5.0

5.3

6.1

3.1

3.4

3.9

21.0

21.1

22.3

17.5

17.8

15.4

11.6

11.2

9.5

630

Add

3,487 2,331.6 2,178.4 2,704.1

401.4

439.9

479.4

274.2

266.5

282.2

12.0

10.6

10.3

12.7

13.1

12.3

10.0

8.8

7.6

1,045

Add

Mangalore Refinery & Petroche Mahanagar Gas Ltd Reliance Industries

606 1,076

777.3

776.2

Agri & Logistics

Mukesh Saraf | +91 44 4344 0041 | [email protected] 1,300

253

63.1

69.2

78.0

11.6

13.3

16.4

7.8

9.0

11.1

10.1

10.8

12.5

32.4

28.3

22.8

20.9

18.2

14.7

1,500

Add

Gateway Distriparks Ltd

258

28

10.5

11.1

12.6

2.5

2.5

3.2

1.2

1.3

1.9

13.3

13.3

18.8

22.7

21.9

14.5

10.9

10.9

8.4

317

Buy

Navkar Corporation

200

28

3.5

4.8

6.7

1.5

1.9

2.7

1.0

1.1

1.6

9.2

7.9

10.5

29.9

26.3

17.9

21.8

17.1

11.9

230

Buy

Snowman Logistics

69

11

2.4

2.1

2.5

0.5

0.7

0.9

0.2

0.1

0.3

4.8

3.3

5.4

55.8

78.8

45.4

25.6

19.3

15.0

83

Add

Adani Ports and SEZ

271

562

72.6

75.4

83.3

47.6

52.4

57.5

28.6

33.8

29.8

23.8

22.9

16.9

19.6

16.6

18.8

15.9

13.8

12.0

272

Buy

Ashoka Buildcon Ltd

168

31

26.1

28.7

37.3

7.7

8.3

10.4

0.6

0.6

1.7

2.8

2.4

7.0

53.8

54.6

18.4

9.4

8.8

6.9

230

Buy

CESC Ltd

653

87

119.0

135.3

143.2

28.5

33.2

35.1

3.6

7.0

8.7

5.9

10.6

11.7

23.8

12.4

10.0

7.3

6.1

5.7

750

Buy

COAL India

325

2,050

780.1

816.2

928.2

183.1

191.2

237.5

142.8

146.2

167.8

38.5

45.1

57.5

14.4

14.0

12.2

11.2

10.7

8.6

350

Buy

Gujarat Pipavav Port Ltd

182

88

6.6

6.8

7.7

3.7

4.2

5.0

2.4

2.4

2.8

12.8

12.0

13.3

37.1

36.9

31.1

23.6

21.1

18.1

166

Add

IRB Infrastructure Developers

247

87

51.3

60.1

64.0

26.6

30.6

35.4

6.4

7.4

7.6

13.8

14.2

12.8

13.7

11.8

11.4

8.5

8.5

7.9

262

Add

KNR Constructions Ltd

700

20

10.0

13.5

17.0

1.7

2.3

2.9

1.3

0.7

1.1

17.0

9.9

13.6

15.6

27.6

18.8

15.5

11.6

9.2

742

Buy

PNC Infratech Ltd

120

31

23.9

31.1

37.9

4.1

6.6

7.3

2.2

2.6

2.1

19.8

18.1

12.6

14.3

11.9

14.6

11.5

7.3

6.5

166

Buy

Power Grid Corp of India Ltd

176

921

213.5

258.5

306.9

186.1

228.7

266.9

60.1

78.9

90.3

14.8

17.1

16.9

15.3

11.7

10.2

10.8

9.3

8.3

205

Buy

Sadbhav Engineering Ltd

302

52

38.8

48.7

60.3

8.0

12.5

15.8

-0.5

1.0

2.0

-2.8

4.4

7.4

NA

53.9

25.3

17.2

11.0

8.6

330

Buy

Torrent Power Ltd

180

86

116.9

97.9

106.1

29.9

23.0

24.7

8.7

4.0

6.2

12.3

5.2

7.9

10.0

21.9

13.9

5.5

6.9

6.2

166 Reduce

Container Corp of India Ltd

Infra & Power

Bharanidhar Vijayakumar | +91 44 4344 0038 | [email protected]

Page 29

Valuation Summary

Company Name

CMP

Strategy

Net Interest Income (Rs. Mkt Bn) Cap (Rs. bn) FY16 FY17E FY18E

Operating Profits (Rs. Bn) FY16

FY17E

FY18E

PAT (Rs. Bn) FY16

FY17E

ABV/share Rs.

FY18E

FY16

FY17E

Financials

P/ABV

FY18E

FY17E

RoE (%)

FY18E

FY16

FY17E

FY18E

Target Price

Rating

Abhinesh Vijayaraj | +91 44 4344 0006 | [email protected]

Axis Bank

602

1,437

168.3

191.8

219.1

161.0

179.7

205.3

82.2

79.2

103.8

216.0

232.0

266.3

2.6

2.3

16.8

14.0

16.2

426

Sell

Bank of Baroda

165

380

127.4

142.9

158.6

88.2

106.4

119.7

-54.0

21.9

45.8

99.9

101.6

120.5

1.6

1.4

-14.4

5.9

11.4

108

Sell

Bank of india

117

123

117.2

118.1

134.5

60.4

62.0

69.7

-60.9

-14.7

15.5

92.4

49.9

63.0

2.3

1.8

-22.5

-5.8

6.1

44

Sell

Canara Bank

300

163

97.6

96.7

116.3

71.5

73.0

87.2

-28.1

16.6

29.8

224.7

215.2

252.9

1.3

1.1

-10.7

6.2

10.4

211

Sell

City Union Bank

132

79

9.8

11.5

13.3

8.3

9.3

10.3

4.4

5.2

6.1

47.4

54.3

62.7

2.4

2.1

15.5

15.9

16.2

144

Buy

DCB

123

35

6.2

7.7

9.2

3.5

3.9

4.4

1.9

2.0

2.3

59.0

65.4

73.1

1.9

1.7

11.9

10.8

11.3

80

Sell

72

124

25.0

28.3

32.7

14.2

16.9

19.9

4.8

7.5

10.8

43.4

46.4

51.8

1.6

1.4

6.0

8.9

11.7

74

Buy

1,298

3,286

275.9

336.8

409.2

213.6

258.7

312.5

123.0

149.4

181.0

284.0

331.2

387.8

3.9

3.3

18.3

19.0

19.6

1,435

Buy

Federal Bank HDFC Bank

ICICI Bank

267

1,555

212.2

216.7

250.0

238.6

260.0

251.3

97.3

109.5

121.4

134.5

146.6

164.6

1.4

1.1

11.6

11.9

11.8

302

Buy

1,170

697

45.2

61.1

74.7

41.4

56.2

68.2

22.9

32.3

40.1

287.4

335.5

395.4

3.5

3.0

16.6

17.2

18.2

1,269

Buy

83

40

27.1

27.0

31.3

16.7

15.4

18.3

4.1

4.6

8.5

102.3

94.6

110.2

0.9

0.8

6.6

6.9

11.9

88

Buy

Kotak Mahindra Bank

807

1,480

69.0

81.0

95.6

39.8

55.1

65.8

20.3

31.7

39.0

126.0

141.7

162.2

4.3

3.5

10.6

12.4

13.5

817

Add

Karur Vysya Bank

467

56

17.8

20.1

21.6

12.4

13.4

15.0

5.7

6.9

7.9

363.4

393.5

440.4

1.2

1.1

12.9

14.4

14.8

572

Buy

Punjab National Bank

138

271

153.1

164.3

199.4

122.2

137.5

161.6

-39.7

17.3

38.3

59.8

64.4

76.3

1.9

1.5

-10.9

4.8

9.9

85

Sell

State Bank of India

254

1,974

568.8

627.5

737.9

432.6

469.1

557.3

99.5

137.9

222.3

137.7

145.8

172.2

1.4

1.1

7.3

9.2

13.4

280

Buy

South Indian Bank

24

32

15.1

16.3

19.3

8.8

10.2

12.5

3.3

4.5

6.4

21.6

24.6

28.4

1.0

0.8

9.3

11.5

14.5

28

Buy

1,170

492

45.7

59.1

78.0

43.0

56.1

73.1

25.4

33.3

43.8

323.3

388.9

476.3

3.0

2.5

19.9

21.9

23.7

1,381

Buy

754

96

6.8

11.0

15.7

4.3

7.3

10.4

3.0

5.3

6.5

108.5

160.5

217.4

4.7

3.5

24.9

31.1

26.8

1,000

Buy

1,098

172

21.4

25.7

31.6

13.0

15.7

19.9

5.7

7.7

9.9

208.5

237.1

290.8

4.6

3.8

18.0

19.2

20.5

1,338

Buy

180

60

5.8

8.9

12.0

3.2

4.8

5.8

1.7

2.4

3.0

48.5

66.4

74.4

2.7

2.4

13.3

13.3

12.3

226

Buy

1,397

2,209

86.9

95.2

107.4

108.2

114.7

124.3

70.9

75.4

83.4

210.6

235.6

265.9

4.7

4.0

21.8

20.8

20.5

1,226

Sell

LIC Housing Fin

571

288

29.4

32.8

37.5

27.1

29.9

34.2

16.6

18.1

21.0

177.5

205.8

238.4

2.8

2.4

19.6

18.4

26.8

429

Sell

M&M Finance

345

196

32.1

31.4

36.5

20.9

18.3

21.3

6.7

7.1

10.2

93.2

86.5

100.0

4.0

3.5

11.4

11.2

14.8

240

Sell

REPCO

875

55

3.0

3.8

4.7

2.7

3.4

4.1

1.5

1.9

2.3

148.7

176.0

210.3

5.0

4.2

17.0

18.3

18.9

946

Buy

Sundaram Finance

1,405

156

10.9

11.7

13.3

7.6

7.9

9.1

4.8

5.0

5.7

290.5

322.0

357.7

4.4

3.6

15.2

14.4

14.7

1,546

Add

Shriram City Union Fin

2,210

146

24.4

27.3

31.0

14.2

15.6

17.7

5.3

6.0

7.4

654.2

694.9

733.1

3.2

3.0

12.3

12.5

13.9

2,273

Buy

Shriram Transport Fin

1,134

257

51.8

59.0

66.5

38.4

44.4

49.3

11.8

16.6

21.2

413.7

440.4

468.9

2.6

2.4

12.2

15.3

17.2

1,032

Sell

417

49

5.1

7.7

11.0

3.0

4.6

5.2

1.8

2.7

2.8

118.2

153.3

175.3

2.7

2.4

18.3

17.8

14.2

561

Buy

Indusind Bank JKBK

Yes Bank Bharat Financial Inclusion Cholamandalam Fin Equitas Holdings HDFC

Ujjivan Financial Services

Page 30

Disclaimer

Strategy

(1/2) Absolute Rating Interpretation

BUY

Stock expected to provide positive returns of >15% over a 1-year horizon

REDUCE

ADD

Stock expected to provide positive returns of >5% – <15% over a 1-year horizon

SELL

Stock expected to provide returns of <5% – -10% over a 1-year horizon Stock expected to fall >10% over a 1-year horizon

Spark Disclaimer Spark Capital Advisors (India) Private Limited (Spark Capital) and its affiliates are engaged in investment banking, investment advisory and institutional equities and infrastructure advisory services. Spark Capital is registered with SEBI as a Stock Broker and Category 1 Merchant Banker. We hereby declare that our activities were neither suspended nor we have defaulted with any stock exchange authority with whom we are registered in the last five years. We have not been debarred from doing business by any Stock Exchange/SEBI or any other authorities, nor has our certificate of registration been cancelled by SEBI at any point of time. Spark Capital has a subsidiary Spark Investment Advisors (India) Private Limited which is engaged in the services of providing investment advisory services and is registered with SEBI as Investment Advisor. Spark Capital has also an associate company Spark Infra Advisors (India) Private Limited which is engaged in providing infrastructure advisory services. This document does not constitute or form part of any offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Nothing in this document should be construed as investment or financial advice, and nothing in this document should be construed as an advice to buy or sell or solicitation to buy or sell the securities of companies referred to in this document. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject Spark Capital and/or its affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to a certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such applicable restrictions. 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. Spark Capital makes no representation or warranty, express or implied, as to the accuracy, completeness or fairness of the information and opinions contained in this document. Spark Capital , its affiliates, and the employees of Spark Capital and its affiliates may, from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. This report has been prepared on the basis of information, which is already available in publicly accessible media or developed through an independent analysis by Spark Capital. While we would endeavour to update the information herein on a reasonable basis, Spark Capital and its affiliates are under no obligation to update the information. Also, there may be regulatory, compliance or other reasons that prevent Spark Capital and its affiliates from doing so. Neither Spark Capital nor its affiliates or their respective directors, employees, agents or representatives shall be responsible or liable in any manner, directly or indirectly, for views or opinions expressed in this report or the contents or any errors or discrepancies herein or for any decisions or actions taken in reliance on the report or the inability to use or access our service in this report or for any loss or damages whether direct or indirect, incidental, special or consequential including without limitation loss of revenue or profits that may arise from or in connection with the use of or reliance on this report. Page 31

Disclaimer

Strategy

(2/2) Spark Capital and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report. To enhance transparency, Spark Capital has incorporated a disclosure of interest statement in this document. This should however not be treated as endorsement of views expressed in this report: Disclosure of interest statement

Yes/No

Analyst financial interest in the company

No

Group/directors ownership of the subject company covered

No

Investment banking relationship with the company covered

No

Spark Capital’s ownership/any other financial interest in the company covered

No

Associates of Spark Capital’s ownership more than 1% in the company covered

No

Any other material conflict of interest at the time of publishing the research report

No

Receipt of compensation by Spark Capital or its Associate Companies from the subject company covered for in the last twelve months:  Managing/co-managing public offering of securities  Investment banking/merchant banking/brokerage services

No

 products or services other than those above  in connection with research report Whether Research Analyst has served as an officer, director or employee of the subject company covered

No

Whether the Research Analyst or Research Entity has been engaged in market making activity of the Subject Company;

No

Analyst Certification of Independence

The views expressed in this research report accurately reflect the analyst’s personal views about any and all of the subject securities or issuers; and no part of the research analyst’s compensations was, is or will be, directly or indirectly, related to the specific recommendation or views expressed in the report. Additional Disclaimer for US Institutional Investors This research report prepared by Spark Capital Advisors (India) Private Limited is distributed in the United States to US Institutional Investors (as defined in Rule 15a-6 under the Securities Exchange Act of 1934, as amended) only by Auerbach Grayson, LLC, a broker-dealer registered in the US (registered under Section 15 of Securities Exchange Act of 1934, as amended). Auerbach Grayson accepts responsibility on the research reports and US Institutional Investors wishing to effect transaction in the securities discussed in the research material may do so through Auerbach Grayson. All responsibility for the distribution of this report by Auerbach Grayson, LLC in the US shall be borne by Auerbach Grayson, LLC. All resulting transactions by a US person or entity should be effected through a registered broker-dealer in the US. This report is not directed at you if Spark Capital Advisors (India) Private Limited or Auerbach Grayson, LLC is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to you. You should satisfy yourself before reading it that Auerbach Grayson, LLC and Spark Capital Advisors (India) Private Limited are permitted to provide research material concerning investment to you under relevant legislation and regulations;

Page 32