Strategy: Quick Insight

AMBIT INSIGHTS

Strategy

Quick Insight

When liquidity becomes the only game in town

Analysis

Over the last 8, 10 and 20 years, the total returns from the Nifty have moved very closely with growth in dividends, with P/E multiple expansion having played a negligible role. However, over the last 3 years, the picture has changed as Nifty returns have been primarily driven by P/E expansion. As a result, on measures like trailing P/E and P/S, the Nifty is trading close to its all-time highs even as consensus EPS growth estimates are repeatedly pulled back year after year. The picture is even more worrisome for broader markets (top 500 firms by market cap) which look much more overvalued than the Nifty. On the basis of current divergence in valuations versus fundamentals, we highlight Banking as a sector most at risk and reiterate our FY18 Sensex target of 29,000 (implying 10% downside).

 

Meeting Note News Impact

Retail inflows keep markets resilient amid deteriorating fundamentals “It’s only when the tide goes out that you discover who’s been swimming naked” -

Warren Buffet

While high frequency data, corporate earnings and discussions with companies suggest that all is not well with the Indian economy, stock markets continue to hit new highs. There is no dearth of factors to make one sceptical about the current valuations demanded by the Indian stock markets given: (1) the ill-preparedness of businesses with respect to GST implementation (click here for our consumer team’s 13 Sep’17 note highlighting the lack of clarity and know-how about GST filing throughout the supply chain); (2) the continued lack of earnings growth (see the exhibit below); (3) the brewing crisis in the housing finance space (click here for our banking team’s 24 Aug’17 note on the subject); and (4) the increasing deterioration in the job market (click here for a survey by HR consulting firm Manpower Group that suggests hiring plans have been the weakest in the last 12 years).

Research Analyst Prashant Mittal, CFA [email protected] Tel: +91 22 3043 3218

Exhibit 1: Since FY12, consensus Sensex EPS has been marked down significantly every single year 2,300 2,141

Sensex EPS (Rs)

2,100

1,983

1,900

1,779 1,670

1,700

1,267

1,300 1,100

1,004

FY12

FY18E

1,939

FY17 1,556 1,516

FY13

1,390

1,343

1,287

FY11

FY19E

FY15

1,469 FY14

1,476

1,500

FY16

2,009

1,433

1,129

1,063

Jul-17

Jan-17

Apr-17

Jul-16 Oct-16

Jan-16

Apr-16

Oct-15

Apr-15 Jul-15

Jan-15

Oct-14

Jul-14

Jan-14 Apr-14

Oct-13

Jul-13

Jan-13 Apr-13

Oct-12

Jul-12

Apr-12

Jul-11

Oct-11 Jan-12

Apr-11

Jul-10

Oct-10 Jan-11

Jan-10

Apr-10

Jul-09 Oct-09

Apr-09

900

Source: Bloomberg, Ambit Capital Research. The chart above has been made using Bloomberg consensus estimates for Sensex EPS for a given financial year over the c EPS estimate has been charted over the course of April 2014 to March 2016.

Yet domestic inflows into the equity markets aided by the retail investors continue unabated. In August 2017, the inflows in mutual funds were more than Rs200bn.SIPs as a percentage of total While one can argue that the whole shift to financial savings has indeed played a roleequity mutual fund inflows have towards these inflows, the chart below clearly showcases that SIPs as a percentage ofbeen steadily decreasing total equity mutual fund inflows have been steadily decreasing, suggesting that the retail inflows are increasingly of a speculative nature.

Ambit Capital Pvt Ltd

21 September 2017

AMBIT INSIGHTS Exhibit 2: SIPs as a proportion of equity mutual fund inflows have been reducing 600 500

100%

91%

90%

82% 74%

Rs bn

400

80% 70%

60%

60% 300

42%

39%

39%

42% 45% 36%

32%

200

50% 32% 33% 31%

SIPs as a % of Net flows (basis rolling 3m aggregate flows) Net equity inflows- 3m aggregate

40% 27%

30% 20%

100

Inflows through SIPs - 3m aggregate

10% 0% Aug-17

Jul-17

Jun-17

May-17

Apr-17

Mar-17

Feb-17

Jan-17

Dec-16

Nov-16

Oct-16

Sep-16

Aug-16

Jul-16

Jun-16

-

Source: AMFI, Ambit Capital Research Note: The equity inflows include flows into balanced funds assuming 60% allocation to equities

Clearly this gush of liquidity has played a role in pushing equity valuations ahead of fundamentals. Investors, in our view, would do well to pay heed to this divergence between valuations and fundamentals until there are reliable signs of a turnaround in the economy. Fundamental drivers of returns take a back seat over the last 3 years Equity owners need to be compensated for providing capital to companies which funds their investments. In the long term, it’s the cash flows generated by these investments (via earnings and dividends) that go towards serving this compensation requirement of investors. A simplistic way then of looking at the long-term equity returns is by using dividend yield and growth as given by the Gordon growth model: +

Cash flows generated from companies’ investments form a fundamental part of investors’ long-term equity returns

=

The first term (D1/P) denotes the dividend yield, the second term (g) denotes the longterm growth rate of dividends. Summation of these two values leads to the total return from equity (r). However, in the short term, returns can also come from a third variable – change in the multiple (P/E). The return profile can always be broken into these three variables – Dividend yield, dividend growth and change in P/E to determine whether the returns are driven fundamentally (through dividends) or through multiple expansion. In the exhibit below, we show a return decomposition for the Nifty over the last 20 years basis these three factors. The chart highlights the trajectory of Rs100 investment at the starting period, earning returns as per each of the three components – dividend yield, dividend growth and P/E change. As can be expected from an index’s long-term return profile, the contribution of P/E towards Nifty’s total returns is almost negligible. One can clearly see that Nifty’s returns have been driven largely by dividend growth.

Ambit Capital Pvt Ltd

Nifty’s returns over 20, 15 and 8 years have been driven largely by dividend growth

21 September 2017

AMBIT INSIGHTS Exhibit 3: In the last 20 years, Nifty’s returns have mainly come from dividend growth

Cumulative investment value

1,400

Nifty- Total return

Div. Growth

Div. yield

1,200

P/E Total return: 12.7%

1,000

Div. growth: 12.5%

800 600 400

Div Yield: 1.3%

200

P/E: -1.1%

FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17

-

Source: Capitaline, Bloomberg, Ambit Capital Research. Note: The Nifty constituents are rebalanced as at Mar’31 each year and numbers computed using market cap weights

The results are similar even if we reduce the computation period to last 15 years or even last 8 years. Exhibit 4: In the last 15 years, Nifty’s returns have mainly come from dividend growth

Cumulative investment value

1,200

Nifty- Total return

Div. Growth

Div. yield

1,000

P/E

Total return: 16.9%

800

Div. growth: 15.2%

600 Div Yield: 1.6%

400 200

FY17

FY16

FY15

FY14

FY13

FY12

FY11

FY10

FY09

FY08

FY07

FY06

FY05

FY04

FY03

FY02

-

Source: Capitaline, Bloomberg, Ambit Capital Research Note: The Nifty constituents are rebalanced as at Mar’31 each year and numbers computed using market cap weights

Exhibit 5: In the last 8 years, Nifty’s returns have mainly come from dividend growth

Cumulative investment value

400

Nifty- Total return

Div. Growth

Div. yield

P/E

350 Total return: 16.6%

300 250

Div. growth: 13.3%

200

Div Yield: 1.8%

150 100

P/E: 1.06%

FY17

FY16

FY15

FY14

FY13

FY12

FY11

FY10

FY09

50

Source: Capitaline, Bloomberg, Ambit Capital Research Note: The Nifty constituents are rebalanced as at Mar’31 each year and numbers computed using market cap weights

However, using this same decomposition over the last three years, we see a different story. As shown in the exhibit below, while the dividend yield and growth have contributed to the returns over the last three years, the majority of returns have come Ambit Capital Pvt Ltd

21 September 2017

AMBIT INSIGHTS from the expansion of P/E. This result is typical of short-term periods, where a majority of the returns’ volatility is explained by changes in the ‘multiple’ component. Exhibit 6: P/E expansion explains most of the Nifty’s returns since FY14

Cumulative investment value

150

Nifty- Total return

P/E

Div. Growth

Div. yield

140

However, over last three years, the majority of Nifty’s returns have come from the expansion of P/E

Total return: 12.6%

130

P/E: 7.7%

120

Div. growth: 2.5%

110

Div Yield: 2.1%

100 FY14

FY15

FY16

FY17

90 80

Source: Capitaline, Bloomberg, Ambit Capital Research Note: The Nifty constituents are rebalanced as at Mar’31 each year

Dividend growth over the last three years has been lacklustre partly due to the lacklustre growth in EPS itself. As can be seen in the chart below, the market cap weighted earnings (PAT) for the Nifty have grown at a measly rate of 1.3% since FY14. Further, the cash generation by the Nifty companies too suffered as is evident from the decline in market cap weighted FCFE and CFO numbers (ex-BFSI). A combination of these two factors, i.e. low earnings growth and low cash generation, has meant that the ability of companies to dole out dividends to the shareholders has got reined in. In such a backdrop, the only reason why the Indian equity markets have generated spectacular returns for equity holders since FY14 has been a marked expansion in the P/E multiple. Exhibit 7: Lack of earnings growth and cash generation has affected dividends in recent times 140,000 CFO (ex-BFSI) CAGR: -0.3%

120,000

PAT CAGR: 1.3%

100,000 Rs mn

Over FY14-17, combination of low earnings growth and low cash generation has led to low dividend growth

80,000 60,000 FCFE (ex-BFSI) CAGR: -1.8%

40,000 20,000 FY14

FY15

FY16

FY17

Source: Capitaline, Bloomberg, Ambit Capital Research. The Nifty constituents are rebalanced as at Mar’31 each year

Broader markets too look expensive across most valuation measures Besides gauging the contribution of fundamental drivers towards recent equity returns, we also look at some other parameters to understand the overall picture better – both for Nifty and for broader markets (captured using top 500 firms by market cap each year). Specifically, we look at the trailing price multiples (price-toearnings, price-to-book and price-to-sales) and also cross cyclical measures like Shiller (or cyclically adjusted P/E) and Hussman P/E to determine the extent of valuation comfort vis-à-vis the past. As can be seen in the exhibit below, Nifty has surpassed trailing P/E levels seen over FY06-08 while on trailing P/S it’s close to the FY06-08 peak. Ambit Capital Pvt Ltd

21 September 2017

AMBIT INSIGHTS We get similar results when we look at Hussman P/E measure (which is very similar to the Shiller P/E, but rather than normalising to the 10-year average earnings, normalises to peak earnings). On this measure, current Nifty valuations have surpassed the valuations seen during the peak of the FY06-08 boom. On Shiller P/E though, the Indian equity markets look cheaper than in FY06-08. The divergence in Hussman vs. Shiller P/E is mathematical in our view, given that while the Hussman P/E looks at current valuations vis-à-vis peak earnings over a 10-year period, Shiller P/E looks at an average of earnings over this period. In a high growth period like FY9908, market cap weighted PAT for Nifty grew by 27% annualised versus only 5% annualised during FY08-17. An average over high growth period will pull down the denominator much more versus the current scenario of low earnings growth – thus making the former look more expensive.

Nifty has surpassed trailing P/E levels seen over FY06-08 while on trailing P/S it’s close to the FY06-08 peak

Hussman P/E in our view offers more insight given that as compared to FY08 when a high Hussman P/E multiple was given post a high earnings growth period, a higher multiple is given today post a sharply lower earnings growth period. This is likely in expectation of a sharply higher earnings growth in future- something that has failed to pan out year after year and given the multiple challenges facing the Indian economy today, isn’t likely to pan out in near future either.

Trailing P/E

Trailing P/B

0

Schiller P/E

Trailing P/S

Source: Capitaline, Bloomberg, Ambit Capital Research Note: The Nifty constituents are rebalanced as at Mar’31 each year and numbers computed using market cap weights

FY17

FY16

FY15

FY14

FY13

FY12

10 FY11

0

FY10

10

5

15 FY05

1

FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17

12

10

25 20

FY09

2

14

15

30

FY08

3

16

20

40 35

FY07

18

25

45 Shiller P/E

4

Trailing P/S and P/B

20 Trailing P/E

50

5

FY06

22

Exhibit 9: …and on cross cyclical measures like the Hussman P/E

Hussman P/E

Exhibit 8: Nifty looks expensive across measures like trailing P/E and trailing P/S…

Hussman P/E

Source: Capitaline, Bloomberg, Ambit Capital Research Note: The Nifty constituents are rebalanced as at Mar’31 each year and numbers computed using market cap weights

We get similar results if we look at the broader markets too as measured by using top 500 companies by market cap every year. Exhibit 11: … and on cross cyclical measures like the Hussman P/E

15

3

10

2

5

1

0

0

Trailing P/E

Trailing P/B

Source: Capitaline, Bloomberg, Ambit Capital Research Ambit Capital Pvt Ltd

Trailing P/S

45

21

40

19

35 30

17 15

25

13

20

11

15 10

9 7

5

5 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17

4

Shiller P/E

20

Trailing P/S and P/B

5

FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17

Trailing P/E

25

across

Hussman P/E

Exhibit 10: Broader markets look expensive measures like trailing P/E and trailing P/S …

Schiller P/E

Hussman P/E

Source: Capitaline, Bloomberg, Ambit Capital Research 21 September 2017

AMBIT INSIGHTS So as to remove the impact of a few large firms on the outcome of aggregate values (as in benchmark indices), we also look at how the median companies have fared over this duration. We compare today’s valuations with the past on four metrics: a) median price-to-sales; 2) median price-to-earnings; 3) median price-to-book; and 4) median Shiller P/E (called P/E 10 in the charts below). The exhibits below clearly demonstrate the overvalued nature of the broader markets given that both median price-to-sales and price-to-earnings ratios trade at values higher than over FY06-08 and price-to-book ratio is fast approaching those peak levels. While the median Shiller P/E is not at the highs of 48.5x seen last in FY06, at a value of 40.5x basis FY17, it’s clearly approaching those levels fast.

Broader markets look much more overvalued than Nifty across measures

5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 -

60

Median P/E and P/E 10

50 40 30 20 10

Median P/S

Median P/B

Median P/E

FY17

FY16

FY15

FY14

FY13

FY12

FY11

FY10

FY09

FY08

FY07

FY06

FY05

FY04

FY03

FY02

FY01

FY00

FY99

FY98

FY97

0 FY96

Median P/S and P/B

Exhibit 12: The extent of overvaluation in the Nifty is lower than…

Median P/E 10

Source: Capitaline, Bloomberg, Ambit Capital Research Note: The Nifty constituents are rebalanced as at Mar’31 each year

4.5 4.0

60 50

3.5 3.0 2.5

40 30

2.0 1.5 1.0 0.5

20 10

-

Median P/E and P/E 10

Median P/S and P/B

Exhibit 13:…in the case of broader markets

Median P/S

Median P/B

Median P/E

FY17

FY15 FY16

FY13 FY14

FY12

FY10 FY11

FY08 FY09

FY06 FY07

FY04 FY05

FY02 FY03

FY01

FY99 FY00

FY97 FY98

FY96

0

Median P/E 10

Source: Capitaline, Bloomberg, Ambit Capital Research

Another measure which can be used to gauge the extent of valuation comfort present in the market is a screen developed by Ben Graham. He suggested a deep value screen based on four criteria: 1) the stock’s earnings yield should be at least twice the AAA bond yield; 2) the stock’s dividend yield should be at least two-third of the AAA bond yield; 3) the issue should have a total debt of less than two-third the tangible book value; and 4) the stock should have a Graham and Dodd P/E (price divided by 10-year earnings) of less than 16x.

Ambit Capital Pvt Ltd

21 September 2017

AMBIT INSIGHTS We modify this construct for the Indian scenario given the structural differences in the Indian economy versus the US economy with respect to both the expected economic growth rates and bond yields. Specifically, we change the first two criteria to: 1) the stock’s earnings yield should be at least equal to the AAA bond yield; 2) the stock’s dividend yield should be at least one-third of the AAA bond yield.

The number of stocks clearing the Graham value screen is lower than the number over FY06-08.

The exhibit below shows the results of running this screen across the years with the universe as the top 500 stocks by market cap in India. As is evident from the chart, the Indian markets are not ‘cheap’. On the contrary, the number of stocks clearing the Graham value screen is lower than the number over FY06-08.

120 100 80 60 40 20

FY17

FY16

FY15

FY14

FY13

FY12

FY11

FY10

FY09

FY08

FY07

FY06

FY05

FY04

FY03

FY02

Number of stocks trading cheap on the modified Graham value screen

Exhibit 14: The number of ‘cheap’ stocks on Graham screen is lower than over FY06-08 (universe being top 500 stocks by market cap each year)

Source: Capitaline, Bloomberg, Ambit Capital Research

Investment implications The analysis above highlights how both the broader markets and the Nifty look expensive across a number of measures especially in light of multiple challenges facing the Indian economy. In his 19 September, 2017, ‘The Sceptical CEO’ note, Saurabh Mukherjea wrote about how a combination of India’s long-standing shortcomings (especially to train and educate its people), increasing automation and PM Modi’s multi-faceted crackdown on black money is creating serious pain for the Indian economy. The inter-play of the aftereffects of these factors is likely to lead to further aggravation of the economic pain which has already made itself visible through a continuous slide in the real GDP growth over the last six quarters. Exhibit 15: Real GDP growth has been trending downwards over the last six quarters

Exhibit 16: Formal sector jobs growth too is under pressure (as per Naukri.com, India’s largest jobs portal) 30% Naukri jobs index (YoY change, in %)

10%

Source: CEIC, Ambit Capital research

Ambit Capital Pvt Ltd

Jun-17

Apr-17

Feb-17

Dec-16

-20% Oct-16

06/2017

03/2017

12/2016

09/2016

06/2016

03/2016

12/2015

09/2015

06/2015

03/2015

12/2014

09/2014

5%

-10%

Aug-16

6%

0%

Jun-16

7%

10%

Apr-16

8%

20%

Feb-16

9%

Dec-15

Real GDP (YoY change, in%)

Indian economy continues to slide lower amidst decreasing job growth

Source: Infoedge’s monthly report on jobs, Ambit Capital research

21 September 2017

AMBIT INSIGHTS The current valuations clearly suggest that the Indian markets have run ahead of the underlying fundamentals. The main argument in favour of the current rally has been that the markets are currently pricing in a cyclical recovery that will lead to an improvement in topline growth. This growth coupled with operating leverage will then flow down into improving profit margins and return ratios. Both on an aggregate and median basis, the RoE and margins of the companies in India indeed are close to the trough as can be seen in the charts below (using top 500 companies by market cap every year). Exhibit 17: Indian companies’ return on equity…

Exhibit 18: …and profit margins are near cyclical troughs

30%

18%

25%

16% 14%

20%

12%

15%

10%

10%

RoE (mcap weighted)

RoE (Median)

Source: Capitaline, Bloomberg, Ambit Capital Research Note: Chart made by using top 500 companies by market cap every year

PAT Margin (mcap weighted)

FY16

FY14

FY12

FY10

FY08

FY06

FY04

FY02

FY00

FY96

FY16

FY14

FY12

FY10

FY08

FY06

FY04

FY02

4% FY00

0% FY98

6% FY96

5%

FY98

8%

PAT Margin (Median)

Source: Capitaline, Bloomberg, Ambit Capital Research Note: Chart made by using top 500 companies by market cap every year

However, with an economic backdrop as challenging as highlighted in the paragraphs above, we believe the more likely scenario to resolve the current divergence in valuations vis-à-vis the fundamentals will be through a market correction. Hence, we reiterate our FY18 Sensex target of 29,000 (arrived at by multiplying 10-year average Sensex trailing P/E of 19x with Ambit’s FY18 expected Sensex EPS of Rs1,513), implying a downside of 10% from the current level. Further, to ascertain which sectors and stocks are most at risk, we utilise the return decomposition approach highlighted in the report earlier. We look at the contribution of fundamental drivers vis-à-vis multiple expansion towards the total returns over last three years: 1) for various sectoral indices; and 2) for the stocks in our coverage universe.

A challenging economic backdrop implies divergence in valuations vis-à-vis fundamentals will be resolved through market correction

Exhibit 19: Sectoral ‘return decomposition’ of returns Contribution (FY14-17) Total return CAGR (FY14-17)

Div Yield (FY14)

Div. Growth (FY14-17)

P/E growth

Banks

20.1%

1.9%

-14.9%

38.5%

Media

21.0%

1.2%

1.0%

18.4%

Pharma

11.5%

0.9%

-1.0%

11.7%

Auto

20.5%

1.2%

13.0%

5.5%

FMCG

11.0%

1.5%

5.3%

3.8%

Metals

10.9%

5.4%

8.0%

-2.5%

Energy

14.2%

2.5%

14.9%

-3.0%

7.0%

1.5%

16.6%

-9.6%

Sector

IT

Source: Capitaline, Bloomberg, Ambit Capital Research Note: Nifty sector indices have been used for this exercise with constituents used as of 01 April of each financial year.

The table above suggests that the Banking and Media sectors are most exposed with respect to the return decomposition exercise with P/E expansion more than offsetting the drop in dividend growth over the last three years.

Ambit Capital Pvt Ltd

Banking and Media are the sectors most exposed to the risk of correction

21 September 2017

AMBIT INSIGHTS In the table below, we highlight those stocks from our coverage on which we have a bottom-up SELL and which appear to be most at risk with respect to ‘return decomposition’ framework. Exhibit 20: Stocks at risk basis ‘return decomposition’ of returns Return decomposition (FY08-17) Company Name

Ticker

Ambit Stance

Mcap ADV-6m ($ mn) ($ mn)

Trailing P/E

Total return CAGR (FY08-17)

Div Div. Yield Growth (FY08) (FY08-17)

P/E growth

Return decomposition (FY14-17) Total return CAGR (FY14-17)

Div Div. Yield Growth (FY14) (FY14-17)

P/E growth

Punjab Natl.Bank

PNB IN

SELL

4,762

26.4

21.9

6.8%

2.5%

-26.6%

41.9%

1.0%

1.3%

-56.9%

131.4%

City Union Bank

CUBK IN

SELL

1,746

1.9

21.6

27.0%

1.8%

-2.2%

27.6%

43.0%

1.9%

-33.3%

110.4%

Bank of Baroda

BOB IN

SELL

5,180

29.5

28.7

15.9%

2.8%

-3.1%

16.3%

7.5%

3.0%

-34.7%

59.7%

FB IN

SELL

3,610

18.8

23.5

19.6%

3.7%

1.3%

13.8%

25.8%

2.1%

-3.5%

27.6%

Federal Bank LIC Housing Fin.

LICHF IN

SELL

5,099

18.2

16.5

32.7%

17.7%

-5.2%

18.8%

39.5%

1.9%

11.3%

23.0%

M & M Fin. Serv.

MMFS IN

SELL

3,825

15.4

53.0

30.7%

2.6%

10.2%

15.6%

9.1%

1.5%

-14.2%

25.3%

SBIN IN

SELL

35,950

72.2

104.5

8.6%

1.3%

2.1%

4.9%

16.4%

1.6%

-4.7%

20.2%

St Bk of India IndusInd Bank

IIB IN

SELL

16,264

26.3

34.3

39.0%

0.8%

29.2%

6.8%

42.3%

0.7%

19.7%

18.1%

Kotak Mah. Bank

KMB IN

SELL

30,686

33.1

36.7

21.2%

0.1%

13.6%

6.5%

30.8%

0.1%

14.5%

14.2%

Karur Vysya Bank

KVB IN

SELL

1,488

3.4

15.9

25.8%

6.0%

8.4%

9.4%

17.5%

3.5%

0.0%

13.6%

Zee Entertainment

Z IN

SELL

8,142

16.6

23.2

19.1%

0.8%

10.7%

6.7%

26.2%

0.7%

7.7%

16.3%

Source: Capitaline, Bloomberg, Ambit Capital Research Note: Nifty sector indices have been used for this exercise with constituents used as of 01 April of each financial year.

Ambit Capital Pvt Ltd

21 September 2017

AMBIT INSIGHTS Explanation of Investment Rating Investment Rating

Expected return (over 12-month)

BUY

>10%

SELL NO STANCE

<10% We have forward looking estimates for the stock but we refrain from assigning valuation and recommendation

UNDER REVIEW NOT RATED

We will revisit our recommendation, valuation and estimates on the stock following recent events We do not have any forward looking estimates, valuation or recommendation for the stock

POSITIVE

We have a positive view on the sector and most of stocks under our coverage in the sector are BUYs

NEGATIVE

We have a negative view on the sector and most of stocks under our coverage in the sector are SELLs

* In case the recommendation given by the Research Analyst becomes inconsistent with the rating legend, the Research Analyst shall within 28 days of the inconsistency, take appropriate measures (like change in stance/estimates) to make the recommendation consistent with the rating legend.

Disclaimer This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Ambit Capital. AMBIT Capital Research is disseminated and available primarily electronically, and, in some cases, in printed form. Additional information on recommended securities is available on request. Disclaimer 1. 2.

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AMBIT Capital is the employer of the research analyst(s) who has prepared the research report Any subsequent transactions in securities discussed in the research reports should be effected through Enclave Capital LLC. (“Enclave”). Enclave does not accept or receive any compensation of any kind for the dissemination of the AMBIT Capital research reports. The research analyst(s) preparing the email / Research Report/ attachment is resident outside the United States and is/are not associated persons of any U.S. regulated broker-dealer and that therefore the analyst(s) is/are not subject to supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account. 34. This report is prepared, approved, published and distributed by the Ambit Capital located outside of the United States (a non-US Group Company”). This report is distributed in the U.S.by Enclave Capital LLC, a U.S. registered broker dealer, on behalf of Ambit Capital only to major U.S. institutional investors (as defined in Rule 15a-6 under the U.S. Securities Exchange Act of 1934 (the “Exchange Act”)) pursuant to the exemption in Rule 15a-6 and any transaction effected by a U.S. customer in the securities described in this report must be effected through Enclave Capital LLC (19 West 44th Street, suite 1700, New York, NY 10036). In order to receive any additional information about or to effect a transaction in any security or financial instrument mentioned herein, please contact a registered representative of Enclave Capital LLC. 35. As of the publication of this report Enclave Capital LLC, does not make a market in the subject securities. 36. This document does not constitute an offer of, or an invitation by or on behalf of Ambit Capital or its affiliates or any other company to any person, to buy or sell any security. The information contained herein has been obtained from published information and other sources, which Ambit Capital or its Affiliates consider to be reliable. None of Ambit Capital accepts any liability or responsibility whatsoever for the accuracy or completeness of any such information. All estimates, expressions of opinion and other subjective judgments contained herein are made as of the date of this document. Emerging securities markets may be subject to risks significantly higher than more established markets. In particular, the political and economic environment, company practices and market prices and volumes may be subject to significant variations. The ability to assess such risks may also be limited due to significantly lower information quantity and quality. By accepting this document, you agree to be bound by all the foregoing provisions. Disclosures 37. The analyst (s) has/have not served as an officer, director or employee of the subject company. 38. There is no material disciplinary action that has been taken by any regulatory authority impacting equity research analysis activities. 39. All market data included in this report are dated as at the previous stock market closing day from the date of this report. Analyst Certification Each of the analysts identified in this report certifies, with respect to the companies or securities that the individual analyses, that (1) the views expressed in this report reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly dependent on the specific recommendations or views expressed in this report. © Copyright 2017 AMBIT Capital Private Limited. All rights reserved. Ambit Capital Pvt. Ltd. Ambit House, 3rd Floor. 449, Senapati Bapat Marg, Lower Parel, Mumbai 400 013, India. Phone: +91-22-3043 3000 | Fax: +91-22-3043 3100 CIN: U74140MH1997PTC107598 www.ambitcapital.com

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21 September 2017