AMBIT INSIGHTSreports.ambitcapital.com/reports/AmbitInsights_20May2016.pdfconvinced about the...

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Please refer to the Disclaimers at the end of this Report.

AMBIT INSIGHTS 20 May 2016

DAILY

Large cap "Sells" under coverage with more than 10% downside

SELLs TP (Rs)

Down (%)

FY17 P/E

Tata Steel 175 46 72.2

Bajaj Finance 4,171 46 29.3

MMFS 195 34 18.4

Cummins 594 31 27.8

Godrej Consumer 958 30 34.2

Kotak Mahindra Bk 510 28 29.8

Hindalco Inds 64 26 26.7

SHTF 813 26 15.2

Shree Cement 10,153 25 39.8

Zee 337 23 32.8

Britannia Inds 2,470 18 36.0

Nestle India 5,100 16 51.2

LIC HFC 382 16 12.9

NTPC 118 13 13.2

Dabur India 250 11 35.2

Source: Bloomberg, Ambit Capital research

Note: Large-caps have been defined as stocks with Mcap greater than US$2bn

Updates

Bata (SELL)

PUMA - Setting the ‘cat’ among the pigeons

Balkrishna Industries (SELL)

Triggers remain elusive

Strategy

Ten interesting things that we read this week

Results Update

Gujarat State Petronet (BUY)

Tariff hike remains the key trigger

Results Expectation

ITC: (BUY, 27% upside)

Britannia: (SELL, 17% downside)

Ramco Cement: (SELL, 33% downside)

Ashoka Buildcon: (BUY, 81% upside)

Analyst Notes: Page Industries (BUY): Deep dive to understand ‘Inner strength’ Rakshit Ranjan, CFA, +91 22 3043 3201

Earlier this week we published a note on Page (Click here) reiterating why we are convinced about the competitive advantages underpinning long-term growth and profitability for the company which justify its rich valuations. With laser-like focus on innerwear and associated categories, the Genomals leveraged their experience in the Philippines to fortify Page’s moats around: a) product differentiation given in-house manufacturing; b) aspirational brand recall; and c) tight control on the distribution channel. Hence, new entrants offering either international brand recall or affordable price struggle to break Jockey’s customer loyalty which has been built on a combination of quality, affordability and brand. Weakness in revenue growth momentum in FY16 is temporary and macro-driven. We expect 28%/33% CAGR in revenue/earnings over FY16-21 with average RoE of 57% and a high dividend payout of over 55%. Our DCF-based fair value of Rs14,787 implies 40x FY18E EPS. Reiterate BUY. Source: Ambit Capital research

Please refer to our website for complete coverage universe

http://research.ambitcapital.com

http://research.ambitcapital.com

AMBIT INSIGHTS

Ambit Capital Pvt Ltd 20 May 2016

Bata PUMA - Setting the ‘cat’ among the pigeons Our interaction with Puma India CEO Abhishek Ganguly validates our belief that Bata’s competitive position is eroding. Puma’s 700 SKUs online, below Rs3,000, directly compete with Bata’s “Power” (15% of revenues/PAT) priced at Rs1,400-3,000. This is symptomatic of fast emerging trend of foreign brands using ecommerce for entry-level launches at attractive prices (without discounts). Moreover, cost of retailing online is lower with higher inventory turns than conventional distribution models with lower inventory turns (2x on cost). The fact that Puma derives over 20% of India revenues from ecommerce also signals weakening franchise of distribution or reach-driven footwear players like Bata. These factors certify our structural concerns over: (1) Bata’s large store network and (2) under-investment in branding, which would hit RoE despite recent drag on ecommerce sales as brands cut back on discounts for distribution gains. Retain SELL with TP of Rs388 (21x FY18E EPS).

Key takeaways from our interaction with CEO of Puma India

From discounts to distribution gains

Discounts have been fading in the ecommerce space as business viability takes precedence over growth. However, the footwear space will continue to get disrupted. There are on an average 2,800 SKUs available online from just the top 4 sports brands – Adidas, Nike, Puma and Reebok. Of these, nearly half are priced/listed below Rs3,000. These are entry-level products and in case of Puma they are online exclusives. The ability to reach a wider audience without significant addition of stores, a wider range of products and, yet, lower inventory (as against inventory in every store) imply that ecommerce will continue to disrupt the (especially the mid-range) footwear space.

A route to capture the aspirational/young customer

Mr Ganguly highlighted that Indian youth find international brands more aspirational compared to the Indian ones as very few Indian brands have the design and product attributes of the former. Moreover, the propensity of youth to own more pairs than a middle-aged person is higher. Our interaction with former employees of Bata suggests that Bata has conventionally relied on a customer who after age of 16, or until the school phase lasts, returns to Bata only around the age of 23-25 for the first pair of formal shoes (employment phase). As multiple brands enter India through various channels the chances of a customer returning to Bata will erode unless Bata significantly reinvests in branding and positioning.

Puma - The big cat makes it move

According to Mr Ganguly, Puma is among the top lifestyle brands across various ecommerce portals. Ecommerce, initially through discounts, tapped into this customer base and has helped foreign brands grow. Puma has registered a 31% CAGR over FY11-15 while Nike posted 40% CAGR. While most brands initially didn’t have a concrete ecommerce strategy and grappled with channel conflicts (store sales getting hit as a result), they now use ecommerce to sell entry-level and previous season stocks while the stores have more value-added products and latest collections.

Selling footwear online is getting lucrative

Footwear remains a space where disintermediation (cost of selling a US$25 pair of shoes is 23% of sales online (see exhibit 2), vs a 45-50% distribution margin for a physical store) coupled with higher inventory turns in a conventionally low-turn category enable better pricing for the customer and higher margins for the brand. Therefore, customers get benefits of lower priced products even as ecommerce-funded discounts reduce. Therefore, foreign brands would continue to leverage on this channel to overcome their distribution disadvantage.

SELL Quick Insight Analysis Meeting Note News Impact

Stock Information Bloomberg Code: BATA IN

CMP (Rs): 570

TP (Rs): 388

Mcap (Rs bn/US$ bn): 72/1.1

3M ADV (Rs mn/US$ mn): 236/3.5

Stock Performance (%)

1M 3M 12M YTD

Absolute 3 17 3 9

Rel. to Sensex 5 10 11 12


Ambit Estimates (Rs mn)

FY16 FY17 FY18

Revenues

24,417 28,582 32,030

EBITDA 2,612 3,404 3,971

EPS (Rs) 12 16 19


Research Analyst

Abhishek Ranganathan, CFA [email protected] Tel: +91 22 3043 3085

mailto:[email protected]

AMBIT INSIGHTS


What does it mean for Bata India?

Bata India has, over CY11-15, built a large network of retail stores resulting in fixed costs (35% of sales) (see exhibit 7). At the same time, the brand remained underinvested with 1% average ad spends (see exhibit 3) during this period. With customers gravitating toward aspirational products, Bata is at a crossroads, where the value proposition of its sportswear brand is rapidly eroding as foreign brands such as Puma make compelling offerings at similar price points. The online popularity of Puma over that of Power (see exhibit 4) is a proxy to rapid shifts the aspirational customer makes when an aspirational brand becomes available. Our premise of disruption from ecommerce is not founded on discounts but on disintermediation. Therefore, Bata India’s RoE will remain suppressed at 19% (average of FY16-20E) as against the peak of 38% in FY11 as the company struggles to generate asset turns on a large store base against increasing competition. The stock trades at a valuation of 38x/31x FY17E/FY18E EPS, which is at a 9% premium to the historical average; we believe this is unwarranted in the absence of any sustainable competitive advantages

Exhibit 1: Revenues of foreign footwear brands have shown healthy growth in the past few years

Source: Ambit Capital research

Exhibit 2: Cost of selling footwear online in India as a percentage of selling price is below retail gross margins

Value of footwear (Rs) 1,500

Referral fees % 13%

Referral fees (Rs) 195

Shipping costs (Rs 55 per 500 gm) 110

Service tax on fees and shipping at 14.5% 44

Cost of selling online including shipping (Rs) 349

Cost of selling online including shipping (% of selling price) 23%

Source: Amazon India, Ambit Capital research

Exhibit 3: Large number of SKUs sold online by top 4 sports footwear brands at affordable prices

Flipkart Amazon Snapdeal Paytm Myntra Jabong

Puma India No of SKUs

Rs 0-2999 447 551 1172 126 434 323

Rs >2999 260 298 355 109 286 142

Total 707 849 1,527 235 720 465

SKU break up of Adidas, Nike, Puma and Reebok

Rs 0-2999 843 1,446 2,824 1,413 875 995

Rs >2999 974 3,415 1,527 806 1,172 1,108

Total 1,817 4,861 4,351 2,219 2,047 2,103

Source: Flipkart, Amazon, Snapdeal, Paytm, Myntra, Jabong, Ambit Capital research

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

FY12 FY13 FY14 FY15

Rs

mn

Adidas India Puma India Nike India (footwear only)

AMBIT INSIGHTS


Exhibit 4: Branding has never been an area of focus for Bata India

Source: Company, Ambit Capital research

Exhibit 5: Search interest for Power (Bata product) across footwear brands continues to be low

Source: Google Trends, Ambit Capital research; Note: LHS indicates search interest is relative to the one with highest searches in the peer set

Exhibit 6: Asset turns are unlikely to reach previous peaks anytime soon…


0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 FY15

Ad spend as % of sales

0

20

40

60

80

100

120

Apr

il 20

14

May

201

4Ju

ne 2

014

July

201

4A

ug 2

014

Sep

201

4

Oct

20

14N

ov 2

014

Dec

201

4Ja

n 20

15

Feb

201

5M

arch

201

5A

pril

201

5M

ay 2

015

June

201

5Ju

ly 2

015

Aug

20

15Se

p 2

015

Oct

20

15

Nov

201

5D

ec 2

015

Jan

2016

Feb

201

6M

arch

201

6

Apr

il 20

16

May

201

6

Puma shoes Adidas shoes Power shoes Reebok shoes

0%

5%

10%

15%

20%

25%

30%

35%

40%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

CY

06

CY

07

CY

08

CY

09

CY

10

CY

11

CY

12

CY

13

FY15

FY16

E

FY17

E

FY18

E

FY19

E

FY20

E

Asset turnover (x) RoE (RHS)

AMBIT INSIGHTS


Exhibit 7: …therefore 9% premium to its one year forward P/E is unwarranted


Exhibit 8: Bata’s fixed costs account for 35% of revenues


-

10

20

30

40

50

60

May-11

Sep-11

Jan-12

May-12

Sep-12

Jan-13

May-13

Sep-13

Jan-14

May-14

Sep-14

Jan-15

May-15

Sep-15

Jan-16

May-16

One-yr fwd P/E 5-yr avg P/E

0

10,000

20,000

30,000

0

5,000

10,000

15,000

CY09 CY10 CY11 CY12 CY13 FY15 FY16E FY17E

Rs

mn

Rs

mn

Salaries Power & FuelRent FreightAdvertisement and Sales Promotion OthersRevenues (RHS)

AMBIT INSIGHTS


Balance Sheet

Year to March (Rs mn) FY15 FY16E FY17E FY18E

Share capital 643 643 643 643

Reserves and surplus 9,569 10,483 11,795 13,399

Total Net worth 10,212 11,126 12,438 14,042

Loans - - - -

Deferred tax liability (net) - - - -

Sources of funds 10,212 11,126 12,438 14,042

Net block 3,077 3,252 3,368 3,396

Capital work-in-progress 482 482 482 482

Investments - - - -

Cash and bank balances 2,101 2,263 4,733 5,969

Sundry debtors 584 602 705 790

Inventories 7,047 7,514 7,361 7,670

Loans and advances 2,087 1,636 1,915 2,146

Total Current Assets 11,926 12,147 14,869 16,748

Current Liabilities 5,396 5,377 5,863 6,150

Provisions 762 264 1,304 1,320

Current liabilities and provisions 6,158 5,641 7,167 7,470

Net current assets 5,768 6,506 7,702 9,278

Miscellaneous expenditure

Application of funds 10,212 11,126 12,438 14,042


Income Statement

Year to March (Rs mn) FY15 FY16E FY17E FY18E

Revenue 26,940 24,417 28,582 32,030

yoy growth 30% -9% 17% 12%

Total operating expenses 23,274 21,805 25,177 28,060

EBITDA 3,666 2,612 3,404 3,971

yoy growth 14% -29% 30% 17%

Net depreciation 793 776 833 922

EBIT 2,873 1,836 2,571 3,048

Interest and financial charges 18 12 - -

Other income 434 316 435 602

PBT 3,289 2,140 3,006 3,650

Provision for taxation 976 642 992 1,204

Adj PAT 2,313 1,498 2,014 2,445

yoy growth 21% -35% 34% 21%

Reported PAT 2,313 1,498 2,014 2,445

EPS (`) 18 12 16 19

DPS (`) 6.5 4.5 5.5 6.5


AMBIT INSIGHTS


Cash Flow Statement

Year to March Rs mn) FY15 FY16E FY17E FY18E

PBT 3,289 2,140 3,006 3,650

Depreciation 793 776 833 922

Interest paid (net) (232) 12 - -

CFO before change in WC 3,838 2,928 3,839 4,572

Change in working capital (1,215) (576) 1,275 (341)

Direct taxes (paid)/refund (1,435) (642) (992) (1,204)

CFO 1,710 4,122 3,027 3,659

Net capex (1,336) (951) (950) (950)

Net investments - - - -

Interest received 199 - - -

CFI (1,140) (951) (950) (950)

Proceeds from borrowings - - - -

Change in share capital - - - -

Interest & finance charges paid (18) (12) - -

Dividends paid (487) (585) (701) (842)

CFF (504) (596) (701) (842)

Net increase in cash (457) 163 2,471 1,235

Opening cash balance 2,557 2,100 2,263 4,733

Closing cash balance 2,100 2,263 4,733 5,969

FCF 374 3,171 2,077 2,709


Ratio analysis

Year to March FY15 FY16E FY17E FY18E

Revenue growth 30.4 (9.4) 17.1 12.1

EBITDA growth 13.9 (28.8) 30.3 16.6

PAT growth 21.2 (35.2) 34.4 21.4

EBITDA margin 13.6 10.7 11.9 12.4

EBIT margin 10.7 7.5 9.0 9.5

Net margin 8.6 6.1 7.0 7.6

RoCE (%) 30.9 17.2 21.8 23.0

RoE (%) 21.4 14.9 18.1 19.4


Valuation parameters

Year to March FY15 FY16E FY17E FY18E

P/E (x) 27.6 48.9 37.6 30.8

P/B(x) 6.3 6.6 5.9 5.3

Debt/Equity(x) - - - -

Net debt/Equity(x) (0.2) (0.2) (0.4) (0.4)

EV/Sales(x) 2.3 2.5 2.1 1.8

EV/EBITDA(x) 16.9 23.6 17.4 14.6


AMBIT INSIGHTS


Balkrishna Industries Triggers remain elusive BKT’s 4QFY16 results call indicated that volume improvement (5% YoY, 17% QoQ) was led by demand recovery in Europe and rising share of India and OE segment. While we increase our volume estimates for FY17/FY18 by 9%, our revised estimate of 8% CAGR over FY16-18 is below double-digit growth (13%) over FY10-15 as major tractor/construction companies and global peers maintain weak demand forecast. On margins, management sounded cautious given headwinds from rising rubber prices and lower euro sales realisation. We downgrade FY17/FY18E EBITDA margin by 116bps to 29.1%/27.8% building in current rubber prices. We upgrade FY17/FY18 EBITDA and net earnings by 7%, which however implies only 3% EBITDA CAGR and 5% net earnings CAGR over FY16-18. Our revised May 2017 TP increases 7% to Rs647 (10x FY18E net earnings).

Key takeaways from the management conference call

4QFY16 volumes helped by pick-up in Europe and rising share of India and OEM segment

Management indicated that the volume improvement in 4QFY16 (up 5% YoY and 17% QoQ) was led by:

Improvement in the agriculture segment (63% of FY16 volumes);

Some pick-up in demand in Europe (~53% of volumes) and rising share of India (15% in FY16 vs 12% in FY15); and

Increasing contribution from the OE segment (27% of 4QFY16 volumes vs 22% in 4QFY15).

Management has guided for FY17 volume growth of 5-11%. The recent increase in commodity prices could lead to restocking of inventories at the dealer level, thereby helping boost demand.

The company continues to maintain its strategy of gaining market share across geographies by focusing on new products (particularly in mining), new customers (increasing OE presence), and new geographies like India.

Rising rubber prices and lower euro realisation to hit margins

Management indicated that the EBITDA margin in 4QFY16 (32.6%, 404bps YoY improvement) is not likely to sustain due to:

The recent increase in rubber prices. Given that the demand situation is not strong, the company has not taken any price hikes so far; and

Lower euro realisation of Rs80/euro as against Rs84/euro in FY16 would start affecting realisations/margins from 1QFY17.

For FY17, the company’s average euro revenue is hedged at Rs79-80. The company has largely hedged the US$-INR leg (of euro revenue exposure) at current 12-month forward rates but has only partially hedged the US$/euro leg.

Management indicated that sustainable margins would be 25%-27%

Capex to moderate

The Bhuj plant has been fully commissioned and operated at close to 25% utilisation in FY16. The company plans to improve utilisation levels to ~33% by FY17.

Capex would mainly be for maintenance of plants and would range at Rs1bn-1.5bn.

Of US$217mn external commercial borrowings yet to be repaid, an installment of US$91mn will be paid in 1QFY17. BKT expects to be long-term debt free by FY19.

SELL Quick Insight Stock Information Bloomberg Code: BIL IN

CMP (Rs): 702

TP (Rs): 647

Mcap (Rsbn/US$ bn): 68/1.0

3M ADV (Rsmn/US$ mn): 17/0.3


1M 3M 12M YTD

Absolute 11 23 (5) 9

Rel. to Sensex 13 16 3 12


Ambit Estimates (Rs bn)

FY16 FY17E FY18E

Revenues 34.5 37.3 41.5

EBITDA 10.8 10.9 11.5

EPS (Rs) 58.7 59.3 64.9


Research Analysts

Ashvin Shetty, CFA [email protected] Tel: +91 22 3043 3285

Ritu Modi [email protected] Tel: +91 22 3043 3292

Gaurav Khandelwal, CFA [email protected]: +91 22 3043 3132




AMBIT INSIGHTS


Others

As regards the ongoing anti-dumping duty case in the USA, the company is currently making submissions. The case is likely to be decided by February 2017.

Where do we go from here?

4QFY16 performance drives FY17E-18E volume upgrades…

BKT’s volumes increased by 17% QoQ to 41,306 tonnes in 4QFY16, helped by the improvement in demand in Europe (53% of volumes). The company has guided for FY17 volumes of 155k-165k tonnes, implying 5-11% YoY growth. We find the 4QFY16 volume jump and management guidance surprising given the fact that major tractor/construction players like John Deere, AGCO and Caterpillar forecast the demand weakness will persist in CY16. Tractor majors John Deere and AGCO expect close to 8% YoY decline in tractor sales in CY16 (following a 15%- 20% decline in CY15). Similarly, Caterpillar, one of the world’s largest construction equipment manufacturers, expects overall sales volumes to decline by 12% in CY16.

Given the higher-than-expected volume performance in 4QFY16 (volumes were 13% higher than our estimates), we upgraded our FY17 volume estimates by 9% to 158k tonnes and FY18 volumes by 9% to 174k tonnes. Our revised FY17/FY18 volume estimates imply 8% CAGR over FY16-18 compared with 6% earlier.

Driven by the volume upgrades, we increase our FY17/FY18 revenue estimates by 11% each.

…offset to some extent by downgrades to EBITDA margin

The company exhibited strong margin performance in 4QFY16 (EBITDA margin of 32.6%, higher than our estimate by 136bps) but the recent increase in rubber prices (current domestic natural rubber price 30% higher than 4QFY16 average) is likely to impact material costs and margins. That, along with lower euro realisation, drives a 116bps downgrade to our EBITDA margin estimates for FY17/FY18 to 29.1%/27.8%. Our absolute EBITDA estimates our FY17 and FY18 are upgraded by 7%. Our FY17 and FY18 net earnings estimates are upgraded by 7%, led by the similar EBITDA upgrade.

Exhibit 1: Change in estimates (standalone)

New estimates Old estimates Change (%)

FY17E FY18E FY17E FY18E FY17E FY18E

Volumes (tonnes) 158,621 174,483 145,516 160,067 9% 9%

Net revenues (Rs mn) 37,323 41,495 33,661 37,246 11% 11%

EBITDA (Rs mn) 10,872 11,548 10,195 10,797 7% 7%

EBITDA margin 29.1% 27.8% 30.3% 29.0% (116)bps (116)bps

PAT (Rs mn) 5,734 6,269 5,350 5,885 7% 7%

EPS (Rs) 59.3 64.9 55.4 60.9 7% 7%

Source: Ambit Capital research

Valuation upgraded by 7% to Rs647/share; 10x FY18E net earnings

We upgrade our one-year forward (May 2017) DCF-based target price by 7% to Rs647/share (using WACC of 15% and terminal growth of 4%), driven by a similar upgrade to EBITDA. The revised valuation implies 10x FY18E EPS (similar to our last published valuation, but at a 30% premium to average FY18 earnings multiples of MRF, Apollo Tyres and Ceat). We believe the premium is justified given superior cash flow generation of BKT over peers. We expect BKT to generate FCF of Rs21.6bn over FY16-FY18 – by contrast, most domestic peers are in capex mode on account of radialisation of the domestic truck-bus tyre market.

However, at the same time, we believe the premium fully captures the strong free cash flow generating capability and possible market share gains for BKT in the global OHT market. Given lack of triggers, we do not see a re-rating of the stock from current levels.

AMBIT INSIGHTS


The stock currently trades at 10.8x FY18E net earnings. We maintain SELL.

Exhibit 2: Balkrishna Industries - 4QFY16 results snapshot

Standalone (Rs mn) 4QFY16A 4QFY16E Div (%) 4QFY15A YoY 3QFY16A QoQ

Net sales (Please see note) 9,509 8,279 15% 10,250 -7% 8,403 13%

Material consumed 3,662 3,247 13% 4,730 -23% 3,300 11%

As % of net sales 38.5% 39.2% (71)bps 46.1% (764)bps 39.3% (76)bps

Gross profit 5,847 5,032 16% 5,520 6% 5,103 15%

Gross margin 61.5% 60.8% 71bps 53.9% 764bps 60.7% 76bps

Employee Expenses 611 496 23% 470 30% 479 28%

As % of net sales 6.4% 6.0% 43bps 4.6% 184bps 5.7% 72bps

Other Expenses 2,133 1,947 10% 2,120 1% 1,879 14%

As % of net sales 22.4% 23.5% (108)bps 20.7% 175bps 22.4% 7bps

EBITDA 3,103 2,589 20% 2,930 6% 2,744 13%

EBITDA margin 32.6% 31.3% 136bps 28.6% 404bps 32.7% (3)bps

Depreciation 705 800 -12% 572 23% 764 -8%

EBIT 2,398 1,789 34% 2,358 2% 1,980 21%

EBIT margin 25.2% 21.6% 361bps 23.0% 221bps 23.6% 166bps

Interest 81 102 -20% 80 2% 88 -7%

Other Income 107 112 -4% 50 114% 105 2%

PBT 2,424 1,799 35% 2,328 4% 1,997 21%

PBT margin 25.5% 21.7% 376bps 22.7% 278bps 23.8% 172bps

Current + Deferred tax 874 591 48% 720 21% 638 37%

Effective tax rate 36.1% 32.9% 319bps 30.9% 513bps 32.0% 411bps

Adjusted PAT 1,550 1,207 28% 1,608 -4% 1,359 14%

PAT margin 16.3% 14.6% 171bps 15.7% 61bps 16.2% 13bps

Source: Company, Ambit Capital research. Note: Net exchange gain of Rs713mn, Rs1,480mn and Rs905mn on transactions related to sales and purchases considered under Net Sales above for 4QFY16, 4QFY15 and 3QFY16, respectively (in the reported results, this is shown as a separate line item in costs)

AMBIT INSIGHTS


Balance sheet – standalone

Year to March (Rs mn) FY15 FY16 FY17E FY18E

Net worth 22,917 27,953 33,279 39,083

Loans 23,578 18,978 12,905 6,833

Deferred tax liability (net) 1,887 2,382 2,382 2,382

Sources of funds 48,382 49,313 48,567 48,298

Net block 24,148 30,348 28,021 25,721

Capital work-in-progress 7,115 500 500 500

Investments 34 34 34 34

Net current assets 17,086 18,431 20,011 22,043

Application of funds 48,382 49,313 48,567 48,298


Income statement – standalone


Revenue 40,485 34,531 37,323 41,495

EBITDA 10,030 10,782 10,872 11,548

Depreciation 2,402 2,811 3,067 3,123

Interest expense 464 341 255 158

Other income 112 841 1,004 1,085

PBT 7,276 8,471 8,553 9,352

Provision for taxation 2,387 2,792 2,819 3,083

Adjusted PAT 4,888 5,679 5,734 6,269

EPS diluted (Rs) 50.6 58.7 59.3 64.9


Cash flow statement – standalone


PBT 7,276 8,471 8,553 9,352

WC changes 1,759 1,888 (808) (801)

CFO 9,789 10,373 7,245 7,664

Net capex (3,662) (2,397) (740) (822)

Net Investments (769) (3,876) - -

CFI (4,330) (5,433) 263 263

Proceeds from borrowings (608) (4,603) (6,073) (6,073)

Others (interest, dividend, etc) (690) (981) (663) (623)

CFF (1,298) (5,584) (6,735) (6,696)

FCF 6,127 7,976 6,505 6,842


Ratio analysis / Valuation parameters – standalone

Year to March FY15 FY16 FY17E FY18E

Revenue growth 13.2 (14.7) 8.1 11.2

EBITDA margin 24.8 31.2 29.1 27.8

Net margin 12.1 16.4 15.4 15.1

RoCE 19.1 20.5 21.0 23.7

RoIC 12.9 13.7 14.1 15.9

RoE 23.4 22.3 18.7 17.3

Net debt / Equity (x) 0.6 0.3 0.0 (0.2)

P/E (x) 13.9 11.9 11.8 10.8

P/B(x) 3.0 2.4 2.0 1.7

EV/EBITDA(x) 8.7 8.1 8.0 7.5


AMBIT INSIGHTS


Strategy Ten interesting things that we read this week At Ambit we spend a lot of time reading articles that are not directly relevant to Indian stocks. However, since the Indian economy is now umbilically linked to its global counterpart, the articles that we come across have relevance for Indian stocks and the Indian economy. In that context, this report contains the ten most interesting pieces that we read this week.

1) Buffet and Bogle unite against hedge funds [Source: Financial Times] (http://goo.gl/AT4Jqa)

Text for Google: Vanguard’s rise is more than just a symbolic humiliation to active management

Warren Buffett and Jack Bogle are the octogenarian opposites of investing: Buffett, the ultimate stockpicker, whose legacy includes educating a generation of value investors; Bogle, the founder of Vanguard, who has proselytised index investing for 40 years. Yet within a fortnight of each other, they gave essentially the same speech. While Mr Buffett delivered a 10-minute 'sermon' on the stupidity of investing in hedge funds at Berkshire Hathaway’s annual meeting in Omaha, Mr Bogle’s pitched index investing as David fighting the intellectual Goliaths of algorithm-driven hedge funds, active mutual funds and the new breed of “smart-beta” managers at the Institute of Quantitative Finance at Washington.

Mr Buffett differentiated between the two groups by calling one side as the “low energy” investors who buy half of everything that exists in the investment world and then do nothing, “a slovenly group that just sits for year after year”. In the other half would be the “hyperactives”, as he describes them. “This group, by definition, can’t change from its half of the ultimate investment results. They are going to have the same results as the ‘no energy’ people but they’re also going to have terrific expenses because they’re all going to be moving around, hiring hedge funds, hiring consultants and paying lots of commissions. As a group, that half has to do worse than this half does.”

In Mr Bogle’s speech, he attempted to quantify the disadvantage. Hedge funds manage about $2.8tn of assets, generating about 300 basis points in management and performance fees i.e. about $84bn in fees alone. Vanguard, by contrast, supervises about $2tn in index funds, at a cost of about $1.6bn. Interestingly, it’s been eight years since Mr Buffett wagered $1m for charity that a simple Vanguard S&P index fund would beat any portfolio of five hedge funds anyone cared to construct over the next decade. Ted Seides, the hedge fund manager who took up the challenge, is losing badly. It is hard to see his portfolio closing the gap in respective net returns after fees. Why? The hedge funds have returned 22 per cent while the S&P is up 66 per cent.

The rise of Vanguard and its index-tracking copycats is more than just a symbolic humiliation for active fund management. As Morningstar, the data provider, reported last month, the shift of money out of actively managed mutual funds has accelerated in the past year. Passively managed mutual funds and exchange traded funds in the US attracted $384bn in the year to March, while active funds lost $277bn in assets. And in the first three months of 2016, hedge funds — the most active managers of all — suffered their first quarterly outflows since the financial crisis.

2) Always cry over spilt milk! [Source: GMO] (https://goo.gl/YSiyOa)

This quarterly letter (1Q 2016) from GMO has two parts to it. Whilst both are super reads, we highlight the second part - authored by Jeremy Grantham – as being an outstanding read. Grantham discusses his views on the disproportionate impact of Chinese economy on commodities as an asset class. Key takeaways:

The only thing that really matters in asset allocation is sidestepping some of the pain when the rare, great bubbles break. At other times, traditional diversification will usually be good enough. Also, he describes the impact mean reversion has on

Quick Insight Analysis News Note Meeting Note

Research Analysts

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

Saurabh Mukherjea, CFA [email protected] Tel: +91 22 3043 3174

http://goo.gl/AT4Jqa)

https://goo.gl/YSiyOa)



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asset returns. For instance he mentions that whilst every major bull event is called a paradigm shift, such shifts almost never exist (except in the imagination of the bulls). Specifically, in 1999 GMO look at 28 major bubbles of the past and were able to call the score: Mean Reversion, 28; Paradigm Shift, Nil!

Ironically though, in 2005 Grantham presented oil as the first important paradigm shift his rationale being that oil by 1979 had spiked to over $100 a barrel in today’s currency. Against the previous 100-year trend of $16 that $100 price was over a 1 in 1 billion long shot. Grantham believed that this event was caused by the newly effective cartel, OPEC. It was therefore a paradigm shift. Further, after 1999 the costs of finding new oil started to rise very rapidly. He opines that the price needed to support the development of new oil reserves has risen to at least $65 a barrel (in today’s prices). This rise from $16 to $65 constitutes a second paradigm shift in oil. Less is found each year in smaller fields and that oil is more difficult and costly to extract.

Grantham also opined in 2011 that alongside oil, China’s growth together with increases in world population was causing us to face “peak everything.” He however, was fooled – along with all of the CEOs of the miners – by China. Referring to the crash in commodity prices, he says that the four sigma event in mineral prices did not occur because those resources were running out. Nor was the bubble in minerals caused predominantly by massive speculation and momentum responsible. Along with an underlying paradigm shift he assigned a 20% weight to these factors in explaining our current glut and future outlook. China, he believes was the dominant 60% driver of the crash: the sheer magnitude and the long 30-year duration of its growth surge; the remarkable late acceleration in its growth rate; and, finally, the abrupt cessation of Chinese growth. Taken together, these developments constituted the four-sigma event, an event that Grantham – like almost everybody else – could not foresee.

He goes on to provide a rather gloomy outlook for the metals. His argument is based on the fact that by the time China’s growth in demand for metals (and coal) stopped dead, the miners had spent an unprecedented $1.25 trillion in expansion to keep up. Due to long time lags (of up to seven years), new capacity will be coming online for two or three more years despite the current glut. If China’s GDP growth were to average a reasonably strong 4% a year for the next 10 years, its GDP will rise by 48%. If China simultaneously succeeds in lowering its share of capital spending to GDP to 32% in 10 years (from today’s 47%) then the need for growth in capital-spending-type resources will be about nil (47% x 100 = 47 goes to 32% x 148 = 47). There is therefore unlikely to be a quick or dramatic recovery in demand for metals.

3) The dystopian lake filled by the world's tech lust [Source: BBC] (http://goo.gl/31ZJXZ)

This eye opener by Tim Maughan is a report on a toxic, nightmarish lake in Mongolia created by our thirst for smartphones, consumer gadgets and green tech. The place discussed is Baotou, the largest industrial city in Inner Mongolia-one of the world’s biggest suppliers of “rare earth” minerals. These elements can be found in everything from magnets in wind turbines and electric car motors, to the electronic guts of smartphones and flatscreen TVs. In 2009 China produced 95% of the world's supply of these elements, and it's estimated that the Bayan Obo mines just north of Baotou contain 70% of the world's reserves. The question however is - the mining comes at what cost?

The rare earth minerals have had a huge, transformative impact on the city. However, the environmental impact the industry has had on the city is painfully clear. Massive pipes erupt from the ground and run along roadways and sidewalks, arching into the air to cross roads like bridges. Everywhere you look, between the half-completed tower blocks and hastily thrown up multi-storey parking lots, is a forest of flame-tipped refinery towers and endless electricity pylons. The air is filled with a constant, ambient, smell of sulphur. It’s the kind of industrial landscape that America and Europe has largely forgotten – at one time parts of Detroit or Sheffield must have looked and smelled like this.

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Tim also discusses the possibility of artificially set high prices for minerals like cerium and neodymium through suspension of operations in some of the city's plants and creation of supply scarcity. The intriguing thing about both neodymium and cerium is that while they’re called rare earth minerals, they're actually fairly common. For instance, while China produces 90% of the global market’s neodymium, only 30% of the world’s deposits are located there. Arguably, what makes it, and cerium, scarce enough to be profitable are the hugely hazardous and toxic process needed to extract them from ore and to refine them into usable products.

A live victim of this operation can be seen in Baotou toxic lake. Apparently created by damming a river and flooding what was once farm land, the lake is a “tailings pond” i.e. a dumping ground for waste byproducts. Tim describes the sight of the lake as "It’s a truly alien environment, dystopian and horrifying. The thought that it is man-made depressed and terrified me, as did the realization that this was the byproduct not just of the consumer electronics in my pocket, but also green technologies like wind turbines and electric cars that we get so smugly excited about in the West."

4) US Researchers enter the cutting edge with first robot surgeon [Source: Financial Times] (http://goo.gl/s02ep3)

Text for google: US researchers enter the cutting edge

At Children’s National Health System in Washington DC, US researchers have developed what they say is the world’s first surgical robot (called Smart Tissue Autonomous Robot, or STAR) that can outperform human surgeons when operating autonomously on soft tissues such as intestines, paving the way for clinical trials.

STAR combines a robotic arm and an automated suturing tool to sew tissues together. It also has several sensors to measure tension and make sure the sutures are neither too tight nor too loose and a 3D infrared imaging system guides it to exactly the right place to operate. Although STAR is “autonomous” in the sense that it can work independently without human intervention - in contrast to existing surgical robots, such as the market-leading da Vinci, which are always guided by a surgeon - a supervisory surgeon remains on hand to take over if necessary.

The team assessed the quality of the robot’s work by several measures including the consistency and tension of suture spacing and the ability of the rejoined intestine to resist leaking or bursting under pressure. It performed better than human surgeons, with or without robotic assistance, on everything except timing: STAR took longer to complete the operation but Dr Kim - the project leader, said adjusting it to work faster in future would be simple. The next steps will be to develop the system so that it can carry out a complete operation “skin to skin”, as Dr Kim put it.

5) Evergreening by private sector banks [Source: livemint.com] (http://goo.gl/QWBYxW

Finally it is becoming clear that Indian private sector banks have many of the same asset quality problems that have crippled the country’s public sector banks. It is just that they have been better at hiding them for longer beneath a veneer of respectability. More specifically, this searing article by Krishnamurthy Subramanian, calls into question the quality of board oversight, especially with respect to evergreening of loans in private sector banks. He presents numbers to illustrate this argument (numbers which were first highlighted in the P.J. Nayak committee outstanding report in May 2014). As of December 2013, stressed assets in public sector banks had reached alarming proportions, but not in private sector banks. On the contrary, gross non-performing assets as a percentage of loan assets in private sector banks declined in December 2013 when compared to March 2013.

http://goo.gl/s02ep3)

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This seems counterintuitive however, considering that by 2013, the rate of economic growth had been slowing for nearly three years. Many asset heavy corporates which had been leveraging their balance sheets since 2010, faced cash flows that were inadequate to support repayments to banks. Combined with the impasse in infrastructure projects, the number of stressed borrowers burgeoned. To compare the private vs. PSU banks’ portfolios the author uses the Altman Z-score and his findings suggest that as of December 2013, 18.4% of borrowers in public sector banks were Altman-stressed, while 18.6% of borrowers in private banks were Altman-stressed. It also shows that there was little difference in the portfolio of stressed borrowers of private and public sector banks. In fact, statistical tests confirmed that the two distributions were identical!

So were public banks representing a truer picture of reality (whilst private banks were hiding the reality from us)? The author believes that the large provisions reported by ICICI Bank suggest that it is indeed the case and that private sector banks were hiding their stress through possible evergreening. Why? Because in private sector banks, senior management is incentivized on the basis of bank profitability. Also, the compensation paid out to senior management—through stock options—is in substantial measure contingent on the stock price of the bank. There is a potential incentive to evergreen assets in order that provisions do not make a dent in profitability.

Going forward, the author believes we should improve the board oversight. Also, RBI supervisors need to carefully examine if evergreening indeed did occur—and if so, was it wilful? Did sections of the senior management of the bank support these practices? After all, evergreening of large accounts cannot occur without the support of the senior management. Necessary penalties must be levied against them if found guilty though cancellation, in part or full, of unvested stock options, and the claw-back by the bank, in part or full, of monetary bonuses. The existence of any wilful and significant evergreening suggests that the board and the audit committee had also not been adequately vigilant, and it therefore appears desirable that the chairman of the audit committee be asked to step down from the board.

6) China companies borrow to repay debts in latest credit binge [Source: Financial Times] (http://goo.gl/0Jl9b2)

Text for google: Share of borrowing used to refinance debt

China is awash in a credit stimulus that is bigger as a proportion of GDP than the one it unleashed during 2008/2009 financial crisis. But this time around, the deluge is failing to boost growth in an economy already saturated with liquidity. The world’s second-largest economy is currently using four units of credit to generate a single unit of GDP growth. Such a ratio signifies that the debt efficiency of the Chinese economy is at its lowest point since early 2009. While the economy responded smartly to the 2009 stimulus, this year it appears almost impervious to the extra spoonfuls of sugar. China expanded total domestic credit by Rmb12tn ($1.84tn), or 34 per cent of gross domestic product, in the year to November 2009 — significantly less than the Rmb27.9tn, or 40 per cent of GDP, in the year to February this year.

The difference in impact is clear in headline numbers. In 2009, GDP growth accelerated from 6.1 per cent in the first quarter to a full year rate of 9.2 per cent, but the year to February this year has been accompanied by a steady decline in headline growth. There appear to be several reasons behind the dwindling debt efficiency. Overcapacity and oversupply in several key traditional sectors, including steel, cement, copper, aluminium, metal ore mining, building materials and offline retail, has rendered these sectors unresponsive to credit infusions because they do not need to expand capacity or production. Thus much of the new financing is not going into investment, but is rather being used to repay debts built up since the 2009/2010 stimulus.

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The rationale behind these repayments is clear. Six cuts in China’s interest rates since November 2014 have boosted incentives for financial restructuring by replacing higher yielding debt with bonds that have significantly lower coupon rates. This activity appears set to help to shore up strained balance sheets to some extent in a corporate sector that has piled up debts equivalent to 160 per cent of GDP - one of the highest levels in the world.

The same trend of prioritizing debt repayment over investment is also evident in the municipal bond market, which was set up in 2014 to allow Chinese local governments to directly issue bonds. Of an estimated Rmb14.3tn in local government debt issued since the beginning of 2015, little has gone into investment projects. Only 2.5 per cent of “muni” bonds issued were exclusively to generate funds for investment projects. A “mix” category, in which proceeds went both toward investment and to repaying debts, accounted for 41 per cent. Funds raised through the issuance of 55.7 per cent of bonds went exclusively to repay existing debts of various sorts.

7) Surge pricing may not be the only way to balance supply and demand for taxis [The Economist] (http://goo.gl/LK6nxC)

"Surge Pricing" has been a deeply unpopular concept amongst the users of app based taxi services like Uber. This article argues that whilst Uber itself is looking at developing systems that rely on technology, rather than price, to allocate cars so as to avoid such price spikes, in the meanwhile local governments do not need to regulate or ban surge pricing to reduce its sting.

Surge (or dynamic) pricing relies on frequent price adjustments to match supply and demand. Whilst detested by people such a practice demonstrates the elegance with which prices moderate a marketplace. When demand in an area spikes and the waiting time for a car rises, surge pricing kicks in; users requesting cars are informed that the fare will be a multiple of the normal rate. As the multiple rises, the market goes to work. Higher fares ration available cars by willingness to pay: to richer users, in some cases, but also to those less able to wait out the surge period or with fewer good alternatives. Charging extra to those without good alternatives sounds like gouging, yet without surge pricing such riders would be less likely to get a ride at all, since there would be no incentive for all the other people requesting cars to drop out. Surge pricing also boosts supply, at least locally. The extra money is shared with drivers, who therefore have an incentive to travel to areas with high demand to help relieve the crush.

That said, the possibility of earning a surge fare may also strengthen drivers’ incentives to anticipate and respond pre-emptively to high demand. Ironically, the better Uber’s surge-pricing algorithm works, the less the company will need to use it, since drivers’ pre-emptive responses will tend to eliminate the demand imbalances that make surge pricing necessary in the first place. There are tantalising hints that Uber hopes to follow this logic to its conclusion. Using machine learning, it aims to predict he demand patterns and tell drivers where they are likely to be needed. But they would presumably not respond as rapidly as they do to the inducement of surge fares. Eventually, however, Uber hopes to replace its human drivers with autonomous vehicles, which could be directed around the city by the company’s computers without any pecuniary incentives.

8) When TV ads go subliminal with a vengeance, we’ll be to blame [Source: NY Times] (http://goo.gl/oMSJOE)

This piece discusses the existential threat that the TV advertising industry faces. For decades the ad people and the TV people have sat down together to cut deals for the 30-second spots that run during prime time’s commercial breaks. However, with people now switching over to on-demand content delivery through channels like Netflix that showcase popular shows without any commercials - the future of $70bn industry has been thrown into question!

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The billions give television the room to maintain business as usual in the middle of this change-tsunami in a way that, say, newspapers can’t. But some sort of reckoning seems inevitable. In the not-too-long run, network television could come to look nothing like it does today. Maybe you will be surfing apps instead of channels, as the Apple chief executive Tim Cook predicts, skipping between shows that don’t have commercial breaks or hard-and-fast 30- and 60-minute time limits. That would have big consequences for those who have stuff to sell and who still view television ads as the best way to do it - and equally big consequences for traditional television’s gatekeepers.

In the short term, these changes will drive the negotiations for what could be more than $9 billion in advance advertising purchases for the coming fall season. The opening move in this trend came from Magna Global, one of the biggest ad-buying firms in the world, which told The Wall Street Journal two weeks ago that it was shifting $250 million of its clients’ ad dollars to YouTube from traditional television. “What we are trying to do is signal to the market that it is not business as usual,” according to David Cohen, the United States president of Magna Global, “Consumers have over the past several years been migrating away from linear television, and we need to acknowledge that.”

9) Is it ok to torture or murder a robot? [Source: BBC] (http://goo.gl/wX5AJi)

With robots increasingly becoming a part of our mainstream lives, do you think they deserve a set of “robot rights”? If so, in what circumstance would it be OK to torture or murder a robot? And what would it take to make you think twice before being cruel to a machine? Until recently, the idea of robot rights had been left to the realms of science fiction. Perhaps that’s because the real machines surrounding us have been relatively unsophisticated. Nobody feels bad about chucking away a toaster or a remote-control toy car. Yet the arrival of social robots changes that. “They display autonomous behavior, show intent and embody familiar forms like pets or humanoids”, says Kate Darling, a researcher at MIT. In other words, they act as if they are alive. It triggers our emotions, and often we can’t help it.

Some researchers are converging on the idea that if a robot looks like it is alive, with its own mind, the tiniest of simulated cues forces us to feel empathy with machines, even though we know they are artificial. Earlier this year, researchers from the University of Duisburg-Essen in Germany used an fMRI scanner and devices that measure skin conductance to track people’s reactions to a video of somebody torturing a Pleo dinosaur (a robot) – choking it, putting it inside a plastic bag or striking it. The physiological and emotional responses they measured were much stronger than expected, despite being aware they were watching a robot.

Given the possibility of such strong emotional reactions, a few years ago roboticists in Europe argued that we need new set of ethical rules for building robots. The idea was to adapt author Isaac Asimov’s famous “laws of robotics” for the modern age. One of their five rules was that robots “should not be designed in a deceptive way and that their machine nature must be transparent”. In other words, there needs to be a way to break the illusion of emotion and intent, and see a robot for what it is: wires, actuators and software. Darling, however, believes that we could go further than a few ethical guidelines. “We may need to protect “robot rights” in our legal systems”, she says.

To draw an analogy, Darling points out that there are precedents from animal cruelty laws. She questions why is it that we have animal rights? Why is it that many people are happy to eat animals kept in awful conditions on industrial farms or to crush an insect under their foot, yet would be aghast at mistreatment of their next-door neighbour’s cat, or seeing a whale harvested for meat? The reason, says Darling, could be that we create laws when we recognize their suffering as similar to our own. It’s less about the animal’s experience and more about our own emotional pain. So, even though robots are machines, Darling argues that

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there may be a point beyond which the performance of cruelty – rather than its consequences – is too uncomfortable to tolerate.

10) Lure of the Irish: Dublin ready and waiting for post - Brexit bankers [Source: WSJ] (http://goo.gl/jEYqpV)

The looming vote, and the complications a British exit — or “Brexit” — could create, is spurring banks from across the world to re-evaluate long held attachments to the U.K. The cost of being based in London in particular, combined with more stringent financial regulation, is taking its toll and across Europe, financial centres — from Frankfurt to Luxembourg — are quietly touting their benefits ahead of the June 23 vote. Few bank executives expect financial companies to uproot their U.K. operations overnight should the country opt to leave the EU. Instead, rival European financial centers are hoping to skim back-office jobs or entice international groups to create European hubs in their cities.

U.K. Treasury chief George Osborne warned on Tuesday that “tens of thousands” of finance jobs could be put at risk if the country voted for Brexit. There are 5,300 financial businesses that sell financial products across multiple EU countries while based in Britain, according to the Financial Conduct Authority. If the U.K. leaves the EU, it is unclear whether they will still have regulatory clearance to provide services across the trading bloc from Britain. Frankfurt and Paris have long harbored ambitions to supplant London as Europe’s financial center and according to Hubertus Väth, managing director of Frankfurt Main Finance, several Swiss and U.S. banks are scouting out potential office locations in Frankfurt. The banks are worried that if the U.K. leaves the EU, they would no longer be allowed to clear euro-denominated securities from London.

In March last year, the Irish government launched its drive to attract banking jobs. The pitch: Ireland offers a well-educated English-speaking workforce and a competitive tax rate. It also isn’t thinking of leaving the European Union. Several finance companies have already decamped part of their operations in recent years. Citigroup Inc. has a sizable office in Ireland and last year announced plans to move its European retail headquarters to Ireland. In a letter to clients, the U.S. bank cited capital requirements and the ability to “passport,” or sell services across the EU, as reasons for the move. Wells Fargo and Credit Suisse are two other banks which are also looking to expand their operations in the country.

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AMBIT INSIGHTS


Gujarat State Petronet Tariff hike remains the key trigger GSPL’s 4QFY16 PAT of Rs1bn was below our estimate of Rs1.06bn. This was primarily due to lower volumes and tariffs (higher power volumes) driving 5% miss on our EBITDA estimates. We remain sceptical on revival of gas demand over near term, given: a) weaker competitiveness vs. liquid fuels b) poor industrial demand. Key catalyst for GSPL going forward will be on potential tariff revision by PNGRB resulting in tariff hikes of ~10-15%. We trim our volume estimates by 2%/1% for FY17/FY18. We have revised our estimates by 16% for FY17/FY18 due to some delays in PNGRB tariff hike, higher share of subsidised power volumes, and some reduction in volumes estimates. SOTP-based valuation of Rs160 (includes Rs128 for the core business) implies muted 1.7x FY17E P/B for standalone business.

4QFY16 results: EBITDA a miss due to lower tariffs and volumes

4QFY16 transmission volume of 24.3 mmscmd (down 4% QoQ) was marginally below our expectation of 25.5 mmscmd. Tariffs declined 10% YoY and 2.5% QoQ (4% lower than our estimates) due to higher share of our power volumes than what we had assumed. Lower tariffs and volumes led to a 5% miss on our EBITDA estimates despite lower other expense. EBITDA was higher 3% YoY but down 2% QoQ. Consequently, PAT of Rs997mn, down 19% QoQ, was 6% below our estimates. Tax rates of ~35% too spoilt the PAT numbers. On an annual basis, GSPL reported volumes of 24.6 mmscmd, in line with our estimates. Tariffs of Rs1,062/tcm were down 13% YoY due to power subsidy scheme (tariffs at 50% discount), leading to an EBITDA decline of 7%.

Tariff hikes may provide upside

PNGRB notification has allowed for lower volume divisor in tariff calculation (75% of designated capacity/actuals). There is no clarity on other assumptions being used for tariff recalculations such as capex considered, operating costs, etc. APTEL had asked PNGRB in November 2014 after GSPL’s plea to recalculate tariffs with more realistic assumptions on parameters such as inflation, system use gas, depreciation rates, manpower costs and capex (PNGRB disallowed capex incurred by GSPL post Dec’08 and capex incurred on spur lines). We expect a favourable tariff order by 2HFY17. We are building in a blended 15% increase in our tariffs over FY17/FY18.

End-use gas demand could remain limited despite cheaper prices While LNG prices have come off sharply, we note gas demand has been flat sequentially for the last 6 months, at 150 mmscmd. Incremental gas demand does not seem to be price sensitive but depends on: a) sharp industrial recovery, driving power demand (thermal power is cheap and PLFs remain low at 64%), b) a sharp rally in crude prices, making gas competitive compared to fuel oil, naptha and diesel. We like GSPL over other pipeline players due to relative ability to capitalise better on spot LNG which is cheaper and pipeline connectivity across the industrial state of Gujarat.

Where do we go from here?

Tariff hike in 2HFY17 would be a key catalyst for the stock price. Our volume forecasts build in 5mmscmd net addition over FY15-18 despite moderation in Reliance volumes. Many old customers of GSPL with existing infrastructure for gas may come back given the attractive pricing of LNG vs alternative fuels. From the peak of ~35mmscmd in FY12, GSPL lost ~10 mmscmd volumes from steel, power (including captive consumers), and industrial CGD consumers. We have kept our estimates broadly unchanged. Our BUY stance on GSPL is premised on: (a) improved offtake in volumes as LNG prices decline; (b) tariff revision by PNGRB likely to come by FY17; (c) rising presence in the CGD business through Gujarat Gas (26% stake); and (d)

BUY Result Update Stock Information Bloomberg Code: GUJS IN

CMP (Rs): 136

TP (Rs): 160

Mcap (Rs bn/US$ bn): 77/1.1

3M ADV (Rs mn/US$ mn): 52/0.8


1M 3M 12M YTD

Absolute (1) 5 15 (1)

Rel. to Sensex 0 (3) 23 2


Ambit Estimates (Rs mn)

FY16 FY17 FY18

Revenues 9,546 11,131 12,743 EBITDA 8,654 9,820 11,252 EPS (Rs) 7.9 8.7 10.6 Source: Bloomberg, Ambit Capital research

Research Analysts

Ritesh Gupta, CFA [email protected] Tel: +91 22 3043 3242

Aakash Adukia [email protected] Tel: +91 22 3043 3273



AMBIT INSIGHTS


controlled nationwide expansion of pipelines. The stock currently trades at 1.8x FY17E book. Our DCF-based valuation (cost of equity 13%, terminal growth 3%) implies a valuation of Rs128/share. We also assign value of Rs32 to GSPL’s stake in other CGD networks. The Gujarat Gas stake is valued at Rs26/share (20% to current market value and 20% holding company discount) and the Sabarmati Gas stake is valued at Rs10/share. Out target price implies a P/B multiple of 1.7x one-year forward (historical range of 1x-3x), building in gradual improvement in RoEs led by: (a) tariff hike of minimum 15% by FY17/FY18; and (b) volume improvement due to cheap spot LNG prices.

Exhibit 1: Volume and transmission tariff trends


Exhibit 2: Change in estimates

New estimates Old estimates Change (%)

FY17 FY18 FY17 FY18 FY17 FY18

Transmission volume (mmcmd) 26.0 27.6 26.6 27.9 -2.0% -1.1%

Transmission tariff (Rs/tcm) 1,171 1,265 1,305 1,410 -10.3% -10.3%

Revenue (Rs mn) 11,515 13,138 13,091 14,801 -12.0% -11.2%

EBITDA (Rs mn) 9,820 11,252 11,344 12,875 -13.4% -12.6%

PAT (Rs mn) 4,916 5,965 6,002 7,104 -18.1% -16.0%

EPS (Rs) 8.7 10.6 10.7 12.6 -18.1% -16.0%

Exhibit 3: Quarterly snapshot

4QFY16 4QFY15 % YoY 3QFY16 % QoQ 4QFY16E Divergence (%)

Transmission volume (mmcmd) 24.3 22.3 9.2 25.3 (3.7) 25.5 (4.5)

Transmission tariff (Rs/tcm) 1,028 1,143 (10.1) 1,054 (2.5) 1,070 (3.9)

Net Sales (Rs mn) 2,319 2,387 (2.8) 2,481 (6.5) 2,543 (8.8)

EBITDA (Rs mn) 2,049 1,998 2.5 2,092 (2.1) 2,148 (4.6)

EBITDA margin (%) 88.3 83.7 463.0 84.3 (399.2) 84.5 384.2

Interest (Rs mn) 168 262 (35.9) 184 (8.8) 200 (16.0)

Depreciation (Rs mn) 473 601 (21.2) 472 0.3 470 0.7

Other Income (Rs mn) 131 116 13.1 282 (53.7) 130 0.5

PBT (Rs mn) 1,538 1,251 23.0 1,718 (10.5) 1,608 (4.4)

Tax (Rs mn) 541 580 (6.7) 483 11.9 547 (1.1)

PAT (Rs mn) 997 671 48.6 1,235 (19.2) 1,062 (6.1)

EPS (Rs) 1.8 1.2 48.7 2.2 (19.2) 1.9 (6.1)


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2QFY08 2QFY09 2QFY10 2QFY11 2QFY12 2QFY13 2QFY14 2QFY15 2QFY16

Transmission Revenue (Rs/tcm) (RHS) GSPL Transmission volume

AMBIT INSIGHTS


Balance sheet

Year end Mar FY14 FY15 FY16E FY17E FY18E

Share Holders fund 32,948 36,231 39,635 42,250 44,028

Secured Loans 14,288 11,575 11,575 11,575 8,102

Unsecure Loans - - - - -

Total Debt 14,288 11,575 11,575 11,575 8,102

Deferred Tax Liability 4,202 4,504 4,504 4,504 4,504

Capital Employed 51,439 52,309 55,714 58,329 56,635

Gross Fixed Assets 47,106 48,193 50,693 53,293 54,793

Accumulated Depreciation 15,512 17,539 19,382 21,381 23,436

Net Fixed Assets 31,593 30,654 31,310 31,912 31,357

Capital WIP 6,561 7,765 7,765 7,765 7,765

Net Assets 38,154 38,419 39,075 39,677 39,122

Investments 5,850 6,487 7,135 7,849 8,634

Current Assets without cash 5,031 6,146 6,698 6,593 6,750

Current Liabilities 2,589 3,094 2,881 3,181 3,270

Net working capital 2,443 3,052 3,817 3,412 3,480

Cash and bank balance 4,992 4,352 5,686 7,392 5,399

Capital Deployed 51,439 52,309 55,714 58,329 56,635


Income statement Year end Mar FY14 FY15 FY16E FY17E FY18E

Net Revenue 10,507 10,646 9,919 11,515 13,138

Total Expenditure 1,218 1,371 1,265 1,695 1,887

EBIDTA 9,289 9,275 8,654 9,820 11,252

EBITDA (%) 88.4 87.1 87.2 85.3 85.6

Depreciation 1,839 2,013 1,843 1,998 2,055

EBIT 7,450 7,261 6,810 7,821 9,197

EBIT (%) 70.9 68.2 68.7 67.9 70.0

Interest 1,418 1,178 773 1,053 885

Other income 552 520 641 569 591

PBT 6,583 6,603 6,679 7,337 8,903

Current Tax (2,056) (2,500) (2,234) (2,421) (2,938)

Deferred Tax (336) - - - -

Effective tax (%) (36) (38) (33) (33) (33)

PAT 4,191 4,104 4,445 4,916 5,965

Recurring PAT 4,192 4,104 4,445 4,916 5,965

PAT growth (%) -22% -2% 8% 11% 21%

Recurring EPS (Rs) 7.4 7.3 7.9 8.7 10.6


AMBIT INSIGHTS


Cash flow statement Year end Mar FY14 FY15 FY16E FY17E FY18E

Consolidated PAT 4,191 4,104 4,445 4,916 5,965

+ Depreciation 1,839 2,013 1,843 1,998 2,055

+ Deferred Tax Liability 336 301 - - -

Cash profit 6,366 6,418 6,288 6,914 8,020

- Increase in Current Assets 543 1,115 552 (105) 157

+ Increase in Current Liabilities (576) 505 (213) 300 89

Operating cash flow 5,246 5,809 5,523 7,320 7,951

- Capex 2,494 2,278 2,500 2,600 1,500

Free cash flow 2,752 3,531 3,023 4,720 6,451

- Dividend 658 659 1,040 2,300 4,187

+ Debt raised (1,808) (2,713) - - (3,472)

- Investments 4,109 637 649 714 785

Net cash flow (3,538) (641) 1,335 1,706 (1,993)

+ Opening Cash 8,531 4,992 4,352 5,686 7,392

Closing Cash 4,992 4,352 5,686 7,392 5,399


Ratio analysis

FY14 FY15 FY16E FY17E FY18E

EBITDA margin (%) 88.4 87.1 87.2 85.3 85.6

EBIT margin (%) 70.9 68.2 68.7 67.9 70.0

Net profit margin (%) 39.9 38.5 44.8 42.7 45.4

Dividend payout ratio (%) 13.4 13.7 20.0 40.0 60.0

Net Debt/Equity (%) 28.2 20.1 14.9 9.9 6.1

Gross block turnover (x) 0.2 0.2 0.2 0.2 0.2

RoCE Post tax (%) 16.1 10.4 9.2 10.0 11.6

RoE (%) 13.4 11.9 11.7 12.0 13.8


Valuation parameters

Year end Mar FY14 FY15 FY16E FY17E FY18E

FDEPS (Rs) 7.4 7.3 7.9 8.7 10.6

CEPS (Rs) 10.7 10.9 11.2 12.3 14.2

BV (Rs) 58.5 64.4 70.4 75.0 78.2

DPS (Rs) 1.0 1.0 1.6 3.5 6.4

Dividend yield (%) 0.7 0.7 1.2 2.6 4.7

P/E (x) 18.3 18.7 17.2 15.6 12.8

EV/EBITDA (x) 9.2 9.0 9.5 8.2 7.0

P/B (x) 2.3 2.1 1.9 1.8 1.7


AMBIT INSIGHTS


ITC: 4QFY16 results expectation (ITC IN, mcap US$40.0bn, BUY, TP Rs423, 27% upside)

Analyst: Rakshit Ranjan, CFA, [email protected], +91 22 3043 3201

ITC will declare its 4QFY16 results today. We expect overall sales growth of 8% YoY; cigarette net sales are likely to increase 8% YoY to Rs45.4bn. We expect cigarette volumes to be flat YoY. We expect the non-cigarette FMCG business to report sales growth of 8% YoY. We expect overall EBIT growth of 12% YoY to Rs35.2bn. We factor in cigarette EBIT growth of ~13% YoY to Rs30.5bn with margin expansion of ~290bps. We expect PAT growth of ~11% to be ahead of sales growth due to margin expansion.

Things to watch out for: (a) cigarette volume growth during the quarter; (b) impact of anti-tobacco regulations and excise duty hike on cigarette demand; and (c) sales growth of the non-cigarette FMCG business.

The stock is currently trading at 22.9x FY17E. We remain BUYers on the stock.

Exhibit 1: Result expectations (Rs mn, unless specified)

Particulars Mar'16E Mar'15 Dec'15 YoY QoQ Comments

Sales 100,149 92,928 91,767 8% 9% We factor in cigarette volumes to be flat YoY

EBITDA 35,750 32,431 36,052 10% -1% Expect marginal EBITDA margin expansion due to low base

EBITDA margin (%) 35.7% 34.9% 39.3% 80 (359)

PBT 37,590 33,484 40,045 12% -6% We expect PAT growth of 11% led by cigarette EBIT growth of ~12% YoY PAT 26,313 23,612 26,528 11% -1%

Source: Company, Ambit Capital research; Note: * Change in EBITDA margin is in bps

mailto:[email protected],

AMBIT INSIGHTS


Britannia: 4QFY16 results expectation (BRIT IN, mcap US$5.3bn, SELL, TP Rs2,470, 17% downside) Analyst: Rakshit Ranjan, CFA, [email protected], +91 22 3043 3201 Britannia will report its 4QFY16 results today. We expect revenue growth of 10% YoY to Rs22.6bn, led by volume growth of 7-8% YoY and price- and mix-led growth of ~2% YoY. We expect gross margin to be flat YoY due to rising input costs. EBITDA margin is likely to increase by ~240bps YoY to 14.4% due to operating efficiencies. We expect PAT growth of 28% YoY to Rs2.1bn, ahead of top line growth due to EBITDA margin expansion.

Key things to watch out for: (a) biscuit volume growth, (b) performance of new launches: Tiger range of biscuits and Pure Magic Deuce, (c) product innovation pipeline, and (d) EBITDA margin change.

The stock is currently trading at 35.7x FY17E earnings. We remain SELLers on the stock with a TP of Rs2,470 (17% downside, implying FY17E P/E of 29.7x).

Exhibit 1: Results expectations (Rs mn, unless specified)

Particulars Mar'16E Mar'15 Dec'15 YoY QoQ Comments

Sales 22,650 20,636 22,402 10% 1% Assuming 7-8% volume and 2% price/mix led growth YoY

EBITDA 3,330 2,530 3,219 32% 3% Expect gross margin to be flat YoY due to rising input costs; EBITDA margin expansion of ~240bps YoY due to operating efficiencies EBITDA margin (%) 14.7% 12.3% 14.4% 244 33

PBT 3,154 2,310 3,201 37% -1% PAT is expected to grow by 28%, ahead of topline due to EBITDA margin expansion PAT 2,145 1,673 2,177 28% -1%



AMBIT INSIGHTS


Ramco Cement: 4QFY16 results expectation (TRCL IN, mcap US$1.8bn, SELL, TP Rs325, 33% downside)

Analyst: Achint Bhagat, [email protected], Tel: +91 22 3043 3178

Ramco Cement is likely to report 12% YoY volume growth in 4QFY16 on a low base of last year, due to sharp volume growth in South India (especially AP) during the quarter. We expect realisation to decline marginally QoQ (-2%) since cement prices declined sharply in AP in the latter half of the quarter. Unitary EBITDA is likely to increase marginally (+2% YoY) to Rs1,492/tonne due to lower realisation. We expect overall unitary costs to decline by 9% YoY owing to sharp decline in power and fuel costs (-19% YoY). We expect EBITDA of Rs3,142mn (up 15% YoY) and PAT of Rs1,382mn (+48% YoY).

Strong pricing discipline in Ramco’s key markets alongside improved cost efficiency meant that Ramco reported industry-leading unitary EBITDA for the last four quarters. However, we believe that unitary EBITDA will plateau. Assuming that the elevated prices sustain, EBITDA growth hereon will mirror volume growth (8-10% at best) and post-tax RoCEs will remain at 12-14% for the next three years. The stock trades at 12x FY17 EV/EBITDA (a 30% premium to its 5-year average). We do not expect significant return hereon since the stock already factors in most of the possible positives – strong volumes and sustained EBITDA/tonne.

Exhibit 1: Results expectation

Company name Mar-16 Mar-15 Dec-15 YoY QoQ Comments Cement despatches (mn tonnes) 2.1 1.9 1.6 12.0 29.2

We expect 12% YoY volume growth for Ramco due to strong volume growth in South India on a low base

Cement Realisation (Rs/tonne) 4,883 5,100 4,983 (4.2) (2.0)

Sales (Rs mn) 10,527 9,971 8,209 5.6 28.2

EBITDA (Rs mn) 3,142 2,743 2,537 14.5 23.9 Marginal unitary EBITDA growth given a high base of last year EBITDA margin (%) 29.8 27.5 30.9 234 (105)

EBITDA (Rs/tonne) 1,492 1,459 1,556 2.3 (4.1) PBT (Rs mn) 2,062 1,669 1,458 23.5 41.5 Sharp PAT growth is a function of higher tax rate last year. Adjusting for the same, PAT growth is in-line with PBT

PAT (Rs mn) 1,382 934 1,177 47.9 17.4

EPS (Rs) 5.8 3.9 4.9 47.9 17.4



AMBIT INSIGHTS


Ashoka Buildcon: 4QFY16 results expectation (ASBL IN, mcap US$385mn, BUY, TP Rs250, 81% upside)

Analyst: Nitin Bhasin, [email protected], +91 22 3043 3241

Ashoka Buildcon’s revenue growth of 14% YoY is likely to be led by BOT revenue growth of 40% YoY. We expect a moderate 10% YoY growth in EPC revenues. Our revenue estimate is 12% ahead of consensus. Consolidated EBITDA margin may increase by 220bps to 23.5% due to higher mix of toll income in revenues. Our EBITDA margin estimate is 80bps below consensus, which might be factoring in a higher skew towards BOT revenue. Due to an increase in revenue and margins, we estimate PBT of Rs508mn, 5% higher than the previous year. The lower quantum of PBT growth vs EBITDA growth is due to a sharp jump in depreciation.

Ashoka Buildcon stands out as the best on our ranking of road developers due to its strong EPC franchise, efficient capital allocation and cash management. The company has a well-funded asset portfolio in Ashoka Concessions Ltd (ACL), along with surplus cash and levers, to generate further growth capital to participate in the BOT opportunity. Moreover, a growing road EPC order book (2.3x book to bill) should ensure reasonable growth from the construction business over FY16-18E (standalone revenue CAGR of 16%).

Exhibit 1: Quarterly earnings estimates (consolidated)

Mar'16E Mar’15 YoY Dec'15 QoQ Comments

Sales (Rs mn) 9,161 8,030 14% 6,039 52% Continuation of the strong growth seen in the previous quarters; led by BOT revenue growth

EBITDA (Rs mn) 2,153 1,714 26% 1,762 22% Increasing proportion of BOT revenue leads to higher margins on a YoY basis EBITDA margin (%) 23.5% 21.3% 220 bps 29.2% -570 bps

PBT (Rs mn) 508 485 5% 167 204% A significant jump in depreciation costs results in PBT growth lower than EBITDA growth PAT (Rs mn) 363 378 -4% 133 174%



AMBIT INSIGHTS


Institutional Equities Team Saurabh Mukherjea, CFA CEO, Institutional Equities (022) 30433174 [email protected]

Research Analysts

Name Industry Sectors Desk-Phone E-mail

Nitin Bhasin - Head of Research E&C / Infra / Cement / Industrials (022) 30433241 [email protected]

Aadesh Mehta, CFA Banking / Financial Services (022) 30433239 [email protected]

Aakash Adukia Oil & Gas / Chemicals / Agri Inputs (022) 30433273 [email protected]

Abhishek Ranganathan, CFA Retail / Mid-caps (022) 30433085 [email protected]

Achint Bhagat, CFA Cement / Roads / Home Building (022) 30433178 [email protected]

Ashvin Shetty, CFA Automobile (022) 30433285 [email protected]

Bhargav Buddhadev Power Utilities / Capital Goods (022) 30433252 [email protected]

Deepesh Agarwal, CFA Power Utilities / Capital Goods (022) 30433275 [email protected] Dhiraj Mistry, CFA Consumer (022) 30433264 [email protected]

Gaurav Khandelwal, CFA Automobile (022) 30433132 [email protected] Girisha Saraf Mid-caps / Small-caps (022) 30433211 [email protected]

Karan Khanna, CFA Strategy (022) 30433251 [email protected]

Kushank Poddar Technology (022) 30433203 [email protected] Pankaj Agarwal, CFA Banking / Financial Services (022) 30433206 [email protected]

Paresh Dave, CFA Healthcare (022) 30433212 [email protected]

Parita Ashar, CFA Metals & Mining (022) 30433223 [email protected]

Prashant Mittal, CFA Derivatives (022) 30433218 [email protected]

Rahil Shah Banking / Financial Services (022) 30433217 [email protected]

Rakshit Ranjan, CFA Consumer (022) 30433201 [email protected]

Ravi Singh Banking / Financial Services (022) 30433181 [email protected]

Ritesh Gupta, CFA Oil & Gas / Chemicals / Agri Inputs (022) 30433242 [email protected]

Ritesh Vaidya, CFA Consumer (022) 30433246 [email protected] Ritika Mankar Mukherjee, CFA Economy / Strategy (022) 30433175 [email protected]

Ritu Modi Automobile (022) 30433292 [email protected]

Sagar Rastogi Technology (022) 30433291 [email protected]

Sumit Shekhar Economy / Strategy (022) 30433229 [email protected]

Utsav Mehta, CFA E&C / Industrials (022) 30433209 [email protected]

Vivekanand Subbaraman, CFA Media (022) 30433261 [email protected]

Sales

Name Regions Desk-Phone E-mail

Sarojini Ramachandran - Head of Sales UK +44 (0) 20 7614 8374 [email protected]

Dharmen Shah India / Asia (022) 30433289 [email protected]

Dipti Mehta India / USA (022) 30433053 [email protected]

Hitakshi Mehra India (022) 30433204 [email protected]

Krishnan V India / Asia (022) 30433295 [email protected]

Nityam Shah, CFA USA / Europe (022) 30433259 [email protected]

Parees Purohit, CFA UK / USA (022) 30433169 [email protected]

Praveena Pattabiraman India / Asia (022) 30433268 [email protected]

Shaleen Silori India (022) 30433256 [email protected]

Singapore

Pramod Gubbi, CFA – Director Singapore +65 8606 6476 [email protected]

Shashank Abhisheik Singapore +65 6536 1935 [email protected]

USA / Canada

Ravilochan Pola - CEO Americas +1(646) 361 3107 [email protected]

Production

Sajid Merchant Production (022) 30433247 [email protected]

Sharoz G Hussain Production (022) 30433183 [email protected]

Jestin George Editor (022) 30433272 [email protected]

Nikhil Pillai Database (022) 30433265 [email protected]

E&C = Engineering & Construction














































AMBIT INSIGHTS


Gujarat State Petronet Ltd (GUJS IN, BUY)


Bata India Ltd (BATA IN, SELL)


Balkrishna Industries Ltd (BIL IN, SELL)


ITC Ltd (ITC IN, BUY)


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GUJARAT STATE PETRONET LTD

0200400600800

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BATA INDIA LTD

0200400600800

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AMBIT INSIGHTS


Britannia Industries Ltd (BRIT IN, SELL)


Ramco Cements Ltd (TRCL IN, SELL)


Ashoka Buildcon Ltd (ASBL IN, BUY)


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BRITANNIA INDUSTRIES LTD

0100200300400500600

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RAMCO CEMENTS LTD/THE

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ASHOKA BUILDCON LTD

AMBIT INSIGHTS


Explanation of Investment Rating

Investment Rating Expected return (over 12-month)

BUY >10%

SELL <10%

NO STANCE We have forward looking estimates for the stock but we refrain from assigning valuation and recommendation

UNDER REVIEW We will revisit our recommendation, valuation and estimates on the stock following recent events

NOT RATED 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 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. AMBIT Capital Private Limited (“AMBIT Capital”) and its affiliates are a full service, integrated investment banking, investment advisory and brokerage group. AMBIT Capital is a Stock Broker, Portfolio

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be reliable. However, such information has not been independently verified by AMBIT Capital and/or the analyst(s) and no representation or warranty, express or implied, is made as to the accuracy or completeness of any information obtained from third parties. The information, opinions, views expressed in this Research Report are those of the research analyst as at the date of this Research Report which are subject to change and do not represent to be an authority on the subject. AMBIT Capital may or may not subscribe to any and/ or all the views expressed herein.

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and Paragraph 11 of the First Schedule to the Financial Advisors Act (CAP 110) provided to Ambit Singapore Pte. Limited by Monetary Authority of Singapore. 25. This Report is only available to persons in Singapore who are institutional investors (as defined in section 4A of the Securities and Futures Act (Cap. 289) of Singapore (the “SFA”).” Accordingly, if a

Singapore Person is not or ceases to be such an institutional investor, such Singapore Person must immediately discontinue any use of this Report and inform Ambit Singapore Pte. Limited.

Disclosures 26. The analyst (s) has/have not served as an officer, director or employee of the subject company. 27. There is no material disciplinary action that has been taken by any regulatory authority impacting equity research analysis activities. 28. All market data included in this report are dated as at the previous stock market closing day from the date of this report. 29. Ambit and/or its associates have financial interest/equity shareholding in Ashoka Buildcon, ITC, Britannia, Tata Steel, M&M Financial Services & Kotak Mahindra Bank.

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 2015 AMBIT Capital Private Limited. All rights reserved.

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