INSTITUTIONAL EQUITY RESEARCH India...

INSTITUTIONAL EQUITY RESEARCH

Page | 1 | PHILLIPCAPITAL INDIA RESEARCH

India Strategy

Tight liquidity = Tight (consumption + Investment) INDIA | STRATEGY In this report, we highlight our concerns and remain vigilant on early signs of weakening consumption and infrastructure spending – the key triggers that push growth. Our thesis is based NBFC liquidity constraint, marked slowdown in road awards, rising domestic/global interest rates, weak rupee, drying/tight domestic and international liquidity, and muted volume growth for FMCG/consumer durables/autos. We have been cautious on markets due to: • Weak macros (CAD, fiscal deficit, yields, brent, rupee) and weak domestic MF flows. • Real macro weakness in the consumption cycle due to – (i) NBFC liquidity concerns;

they have been a major source of funding the consumption boom in automobiles, consumer durables, and CVs, and (ii) MSP income impact likely to be sub‐par as government is implementing it through the procurement route, not through PDPS.

• Investment cycle is seen tapering even before a sustainable up move. • Uncertainty about upcoming state elections persists – an unfavourable outcome for

BJP will be damaging for markets. • Rising US/global yields and higher trade tariffs to dent global economic growth. • China‐led EM currency pressure to persist. We are of the view that NBFC liquidity challenge will have a broad based credit/economic impact and banks will not lend to a large chunk of NBFC borrowers. Thus, we see credit growth slowing in 2HFY19 and reasonable impact on segments that are catered by NBFCs. Since negatives outweigh positives (that could come from states’ pre‐election spending), we maintain our pessimistic stance on Indian equity markets. Due to above factors, we are underweight on NBFCs, PSBs, Automobiles, Capital goods; equal weight on FMCG, Pharma, and private banks; and overweight on IT.

Signs of consumption cooling‐off; NBFC liquidity stress is an added strain: Rural and urban consumption have been driving growth for equity markets and the economy over the last few years. While we are not worried about a sharp slowdown in consumption demand, tapering is likely. Rural demand may remain stable‐to‐weak. Positive: state‐election spending. MSP implementation won’t be effective in raising demand. Urban / semi‐urban demand may be dented due to limited NBFC lending. We expect weaker volume growth for automobiles (2W and CVs), consumer durables, and FMCG in 2HFY19.

Investment – slowing before rising: Central government has spent significantly on infrastructure development (particularly roads and metros) over the last few years, reflected in companies’ order books; we see this slowing down. There is a sharp slowdown in awarding of road projects in FY19 at 400‐450kms (target: 10000kms) vs. an average run rate of 4120kms in the last four years. Central government allocations towards housing and metros were budgeted lower for FY19. Affordable housing and real estate will be dented due to NBFCs’ liquidity tightness. 2QFY19 CMIE capex data and RBI’s capacity utilization survey is clearly showing deterioration. Government capex spend will have to be slashed to contain fiscal slippage. These factors may impact cement demand, going ahead. We expect this scenario to persist for at least a year, until the new government is formed at the centre. Expensive and tight credit availability is an added constraint towards expansion.

If unaddressed, the NBFCs + HFC credit squeeze can damage growth: NBFCs have grown five‐fold in seven years; NBFCs’+HFCs’ AUM at Rs 10‐15tn equals 12% of India’s non‐food credit. Banks’ credit to NBFCs as on August 2018 was Rs 4902bn (6.3% of the gross bank credit) – it has risen 10x in 11 years – and the highest credit is towards home loans (78%), automobiles (18%), and gold (5%). With banks tightening credit to NBFCs and NBFCs in turn to retailers, transporters, and builders, there will likely be lower credit growth for the rest of FY19 and beyond. Slowdown in MFs’ debt flows will be an added liquidity constraint for NBFCs. Rs 1.2tn are due for maturity in the next three months, which will not be easy to roll over.

19 October 2018

Nifty 12mth forward P/E

Source: Bloomberg, PhillipCapital India Research Anjali Verma (+91 22 6246 4115) [email protected] Raag Haria [email protected]

Mean

Mean + 1SD

7

9

11

13

15

17

19

21

Jul/0

5Nov/06

Mar/08

Jun/09

Oct/10

Feb/12

Jun/13

Oct/14

Feb/16

Jun/17

Oct/18


INDIA STRATEGY UPDATE

In this report, we track entire gamut of data to take a view on current macro/financial situation. In the last few years, Indian economic growth was being boosted by government spending, private consumption, favourable global and domestic interest rates/liquidity, and favourable commodity prices. Here, we are going to review the extent of worsening in these factors. Nifty 1yr return and Indian 10yr bond yield

Source: Bloomberg, PhillipCapital India Research

Consumption – Peaked out for now So far, private consumption was holding strong due to government rural spending, stable demand/inflation, and most importantly favourable funding terms due to surplus liquidity and low interest rates. We were expecting added demand push to come from higher MSPs implemented through price deficiency mechanism. Out of the above stated factors, except for rural government spending, all other factors have turned adverse, which will likely dent consumption growth in 2HFY19. We are of the view that NBFC liquidity challenge will have a broad based credit/economic impact and banks will not lend to a large chunk of NBFC borrowers. Thus, we see credit growth slowing in 2HFY19 and reasonable impact on segments that are catered by NBFCs. Below, we highlight the current consumption trends, our forecasts and the factors that can lead to lower consumption growth going ahead. (1) NBFCs+HFCs: Liquidity tightness to cost economy

a. Bank’s credit to NBFCs as on Aug 2018 was at Rs 4902bn, it was at Rs 506bn in FY07, it has risen 10x in 11‐years. It currently amounts to 6.3% of the gross bank credit vs. 3% in FY07.

b. NBFCs AUM (for companies under our coverage) is at Rs 10 trillion, it used to be at Rs 2 trillion in FY11 – its’ a fivefold increase in seven years.

c. Funding break‐up – For our coverage companies, NBFCs+HFCs funding as on June 2018 stands at Banks (25%), Debentures/NCDs (48%), ECBs (16%) – which is long‐term. CPs with 3‐6 months maturity stands at 11%.

d. Loan break‐up: Home loans (78%), Automobiles (18%), and gold (5%). e. NBFC problem: (1) Funding (2) higher interest rates (3) demand for loans (4) rise

in NPAs. Funding is tight which will lead to higher cost of borrowing, thus impacting NIMs. Secondly, the borrowers that they cater to are likely to see weakness – such as automobiles, consumer durables, and real estate could remain tepid. This can result in higher NPAs as well as tepid demand for new loans. NBFCs credit growth already weakened in Q1FY19. Our FY19 growth estimate is now reduced to 12‐14% vs. 20% earlier.

5

6

7

8

9

10

‐80%

‐60%

‐40%

‐20%

0%

20%

40%

60%

80%

100%

120%

Oct‐03 Dec‐05 Jan‐08 Mar‐10 May‐12 Jun‐14 Aug‐16 Oct‐18

Nifty 1yr Return (%) India 10 year Bond Yield (%), rhs



Banks credit to NBFCs Share of bank's credit to NBFCs (%)

Source: RBI, PhillipCapital India Research NBFCs AUM (for companies under our coverage) NBFCs AUM Break‐up

Source: Companies, PhillipCapital India Research Home Loans by HFCs Auto Loans (CV/PVs) by NBFCs

Source: Companies, PhillipCapital India Research

‐10

0

10

20

30

40

50

60

70

0

1000

2000

3000

4000

5000

6000

Apr‐07

Apr‐08

Apr‐09

Apr‐10

Apr‐11

Apr‐12

Apr‐13

Apr‐14

Apr‐15

Apr‐16

Apr‐17

Apr‐18

NBFC credit from banks (rs bn) yoy growth (rhs)

2.5

2.7

2.9

3.1

3.3

3.5

3.7

3.9

0

5

10

15

20

25

30

35

40

‐

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

Mar‐11

Sep‐11

Mar‐12

Sep‐12

Mar‐13

Sep‐13

Mar‐14

Sep‐14

Mar‐15

Sep‐15

Mar‐16

Sep‐16

Mar‐17

Sep‐17

Mar‐18

NBFCs AUM yoy growth rate (rhs)

Home Loan78.1%

Gold 4.6%

CV/PV 15.5%

Tractor1.0%

2W0.5%

Personal0.2%

0%

10%

20%

30%

40%

50%

‐

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

Mar‐11

Oct‐11

May‐12

Dec‐12

Jul‐1

3

Feb‐14

Sep‐14

Apr‐15

Nov

‐15

Jun‐16

Jan‐17

Aug‐17

Mar‐18

Home/Builder/Corporate AUM yoy growth rate (rhs)

0%

20%

40%

60%

80%

100%

‐

300,000

600,000

900,000

1,200,000

1,500,000

1,800,000

Mar‐11

Oct‐11

May‐12

Dec‐12

Jul‐1

3

Feb‐14

Sep‐14

Apr‐15

Nov

‐15

Jun‐16

Jan‐17

Aug‐17

Mar‐18

Auto Laon AUM yoy growth rate (rhs)



Tractors loans by NBFCs 2W loans by NBFCs

Source: Companies, PhillipCapital India Research NBFCs+HFCs funding break‐up MFs equity and debt net flows

Source: AMFI, PhillipCapital India Research (2) MSP prices and food stocks: On the basis of our feedback, 2018 MSP has not had any

positive impact on farmer’s income for the kharif season due to poor procurement and infrastructure facilities. As the government is relying on procurement route to implement MSPs and not on Price Deficiency Payment Mechanism, we have been of the view that its impact on farmers’ incomes will be negligible. Thus, we do not expect any positive consumption impact from higher MSPs.

Monthly Agri commodity Prices (Rs/Quintal) KHARIF CROPS RABI CROPS

Commodity Sept 18 Oct till 10th MSPCurrent

price‐MSP Commodity Sept'18 Oct till 11th MSP 2018‐

19Current

price‐MSPPaddy (Common) 1664.39 1745.93 1750 ‐4.1 Wheat 1877 1887 1840 47.1Jowar (Hybrid) 1849.28 1902.73 2430 ‐527.3 Barley 1548 1567 1440 127.1Bajra 1384.14 1436.51 1950 ‐513.5 Gram 4088 4118 4620 ‐502.0Ragi 2053.25 2138.31 2897 ‐758.7 Masur (Lentil) 5610 5599 4475 1124.5Maize 1383.59 1375.4 1700 ‐324.6 Rapeseed & Mustard 3808 3811 4200 ‐388.6Arhar (Tur) 3836.92 3770.51 5675 ‐1904.5 Safflower 3371 3428 4945 ‐1517.1Moong 4908.13 4875.34 6975 ‐2099.7Urad 4081.71 3946.05 5600 ‐1654.0Groundnut 4119.97 4028.54 4890 ‐861.5Sunflower Seed 3677.75 3662.9 5388 ‐1725.1Soyabean 3091.43 2897.17 3399 ‐501.8Sesamum 8792.55 9339.68 6249 3090.7Nigerseed 3999.32 3944.16 5877 ‐1932.8Cotton (MS) 5020.03 5130.09 5150 ‐19.9

Source: FCI, Agmarket, PhillipCapital India Research

0%

5%

10%

15%

20%

25%

30%

35%

40%

‐

20,000

40,000

60,000

80,000

100,000

120,000

Mar‐11

Sep‐11

Mar‐12

Sep‐12

Mar‐13

Sep‐13

Mar‐14

Sep‐14

Mar‐15

Sep‐15

Mar‐16

Sep‐16

Mar‐17

Sep‐17

Mar‐18

Tractors AUM yoy growth rate (rhs)

0%

5%

10%

15%

20%

25%

30%

35%

40%

‐

10,000

20,000

30,000

40,000

50,000

60,000

Mar‐11

Sep‐11

Mar‐12

Sep‐12

Mar‐13

Sep‐13

Mar‐14

Sep‐14

Mar‐15

Sep‐15

Mar‐16

Sep‐16

Mar‐17

Sep‐17

Mar‐18

2W AUM yoy growth rate (rhs)

Banks25%

Debentures/Bonds47%

CPs11%

FDs1%

Others16%

‐500000

‐400000

‐300000

‐200000

‐100000

0

100000

200000

300000

400000

500000

‐10000

‐5000

0

5000

10000

15000

20000

25000

30000 Equity Debt



Rice food stocks (mn tonnes) Wheat food stocks (mn tonnes)

Source: AMFI, PhillipCapital India Research (3) FMCG volume growth at peak, estimated to drop in Q3‐Q4 due to rising

inflationary pressures. We expect HUL volume growth to drop to 6‐7% from 10‐12% seen in the last few quarters. Inflationary pressures are yet to be passed on to the consumers, which will dent demand, going ahead. Similar trends are expected for other FMCG companies as well.

HUL volume growth (% yoy)

Source: Company, PhillipCapital India Research

(4) Automobile growth weak for last few quarters, likely to remain weak in the coming

quarters, now expected to grow by 8%‐9% in 2H vs. our earlier expectation of 13‐14%. Liquidity constrain on NBFCs will be an added negative especially for 2W and CVs. These segments are generally not catered by the banks.

Automobile domestic sales and growth rates

0

1

2

3

4

52015 2016 2017 2018

0

1

2

3

4

5 2015 2016 2017 2018

‐10

‐5

0

5

10

15

Q1FY08

Q3FY08

Q1Fy09

Q3FY09

Q1FY10

Q3FY10

Q1FY11

Q3FY11

Q1FY12

Q3FY12

Q1FY13

Q3FY13

Q1FY14

Q3FY14

Q1FY15

Q3FY15

Q1FY16

Q3FY16

Q1FY17

Q3FY17

Q1FY18

Q3FY18

Q1FY19

‐30%

‐20%

‐10%

0%

10%

20%

30%

40%

Apr‐12 Mar‐13 Feb‐14 Jan‐15 Dec‐15 Nov‐16 Oct‐17 Sep‐18‐

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000 Total YoY % (rhs)



Automobile domestic sales volumes Automobile domestic sales growth

Source: SIAM, PhillipCapital India Research (5) Consumer durables – Overall consumer durables volume growth is expected to

remain modest at least for a year, on the basis of our analysis. (6) Fuel consumption and price impact – there is inverse correlation between

petrol/diesel consumption and prices at ‐0.57/‐0.4. Correlation for overall fuel consumption basket and oil prices is at ‐0.44.

Petrol consumption vs. retail selling price Diesel consumption vs. retail selling price

Source: PPAC, IOC, PhillipCapital India Research

(7) RBI inflation expectation survey – On the higher side (8) RBI consumer confidence index – Sharp fall in September quarter and trending

lower (at 2014 levels). Huge gap persisting in reality and expectations. Household inflation expectation survey RBI consumer confidence survey

Source: RBI, PhillipCapital India Research

800,000

1,300,000

1,800,000

2,300,000

‐

50,000

100,000

150,000

200,000

250,000

300,000

350,000

Jan‐15 Dec‐15 Nov‐16 Oct‐17 Sep‐18

PV CV Two‐wheelers (rhs)

‐40%

‐20%

0%

20%

40%

60%

80%

Jan‐15 Jul‐15 Jan‐16 Jul‐16 Jan‐17 Jul‐17 Jan‐18 Jul‐18

PV CV Two‐wheelers

60

65

70

75

80

85

90

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

Apr‐11

Oct‐11

Apr‐12

Oct‐12

Apr‐13

Oct‐13

Apr‐14

Oct‐14

Apr‐15

Oct‐15

Apr‐16

Oct‐16

Apr‐17

Oct‐17

Apr‐18

Petrol (tmt) Petrol (Rs/ltr)

40

45

50

55

60

65

70

75

80

4,000

4,500

5,000

5,500

6,000

6,500

7,000

7,500

8,000

Apr‐11

Dec‐11

Aug‐12

Apr‐13

Dec‐13

Aug‐14

Apr‐15

Dec‐15

Aug‐16

Apr‐17

Dec‐17

Aug‐18

Diesel (tmt) Diesel (Rs/ltr)

024681012141618

Mar‐12

Sep‐12

Mar‐13

Sep‐13

Mar‐14

Sep‐14

Mar‐15

Sep‐15

Mar‐16

Sep‐16

Mar‐17

Sep‐17

Mar‐18

Sep‐18

Current Three‐month ahead One‐year ahead

80

90

100

110

120

130

140

80

85

90

95

100

105

110

115

Dec‐13

Apr‐14

Aug‐14

Dec‐14

Apr‐15

Aug‐15

Dec‐15

Apr‐16

Aug‐16

Dec‐16

Apr‐17

Aug‐17

Dec‐17

Apr‐18

Aug‐18

Current situation indexFuture expectation index (rhs)



Investment – Slowing even before rising On the basis of CMIE capex, investment position has rather turned weak in Q2 FY19. This corroborates with RBI business survey as well as likely weakness in government capital spending. This is further supported by sharp drop in road awarding by NHAI. That said, companies order books are strong due to robust government spending in the last few years. (1) CMIE capex data – Already peaked out

• Outstanding projects (in value) peaked in Q2FY18, its consistently falling since then, yoy growth in Q1FY19 is at ‐3%. Sector‐wise break‐up: o Sharp rise in transport services; o Chemicals/metals/irrigation remain strong/stable; o construction/real estate/electricity has fallen, irrigation is rising.

• Projects under implementation are at its high in absolute value, however pace of growth is seen declining (at 2% yoy).

• New projects announced are also at its low in value terms. • Ownership break‐up shows government projects which dominated, have come

off. Private sector further worsens. o Projects outstanding by number have come off in Q2FY19 for the

government, by value remains stable. This is reasonably down for private sector.

o Projects announced by value has fallen substantially for government as well as private sector.

o Projects under implementation are rising for government while its stagnant for the private sector.

o Projects completed have fallen substantially for the government as well as private sector.

o New projects remain stable for government as well as private sector. Cumulative outstanding projects seen declining Cumulative projects under implementation show slower growth

Source: CMIE, PhillipCapital India Research

‐5%

0%

5%

10%

15%

20%

25%

‐

20,000 40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

Mar‐10

Sep‐10

Mar‐11

Sep‐11

Mar‐12

Sep‐12

Mar‐13

Sep‐13

Mar‐14

Sep‐14

Mar‐15

Sep‐15

Mar‐16

Sep‐16

Mar‐17

Sep‐17

Mar‐18

Sep‐18

Outstanding (Rs bn) YoY %

0%

5%

10%

15%

20%

25%

30%

35%

40%

‐

20,000

40,000

60,000

80,000

100,000

120,000

Mar‐10

Sep‐10

Mar‐11

Sep‐11

Mar‐12

Sep‐12

Mar‐13

Sep‐13

Mar‐14

Sep‐14

Mar‐15

Sep‐15

Mar‐16

Sep‐16

Mar‐17

Sep‐17

Mar‐18

Sep‐18

Under Implementation (Rs bn) % YoY



New projects higher 15% yoy at Rs 1.75trn in September’18 Overall project status scenario (QoQ growth ‐ Rs bn)

Source: CMIE, PhillipCapital India Research Industry‐wise outstanding project (Rs bn)

Source: CMIE, PhillipCapital India Research Value of projects outstanding by ownership (Rs bn) New projects announced by ownership (Rs bn)

Source: CMIE, PhillipCapital India Research

‐70%

10%

90%

170%

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Mar‐10

Sep‐10

Mar‐11

Sep‐11

Mar‐12

Sep‐12

Mar‐13

Sep‐13

Mar‐14

Sep‐14

Mar‐15

Sep‐15

Mar‐16

Sep‐16

Mar‐17

Sep‐17

Mar‐18

Sep‐18

New projects (Rs bn) % YoY

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

(2,000,000)

‐

2,000,000

4,000,000

6,000,000

8,000,000

Outstanding QoQ Under Implementation QoQNew Completed (rhs)

0

20,000

40,000

60,000

80,000

Manufacturing MiningElectricity ServicesConstruction & real estate Irrigation

‐

10,000

20,000

30,000

40,000

50,000

60,000

‐

4,000

8,000

12,000

16,000

20,000

Jun‐10

Jan‐11

Aug‐11

Mar‐12

Oct‐12

May‐13

Dec‐13

Jul‐1

4

Feb‐15

Sep‐15

Apr‐16

Nov

‐16

Jun‐17

Jan‐18

Aug‐18

Chemicals & chemical products Construction materialsMetals & metal products Transport equipmentMiscellaneous services Transport services (rhs)

0

20,000

40,000

60,000

80,000

100,000

120,000

Jun‐95

Jan‐97

Aug‐98

Mar‐00

Oct‐01

May‐03

Dec‐04

Jul‐0

6

Feb‐08

Sep‐09

Apr‐11

Nov

‐12

Jun‐14

Jan‐16

Aug‐17

Government (rhs) Private Sector (rhs)Central Government Government State

0

10,000

20,000

30,000

40,000

50,000

Jun‐95

Jan‐97

Aug‐98

Mar‐00

Oct‐01

May‐03

Dec‐04

Jul‐0

6

Feb‐08

Sep‐09

Apr‐11

Nov

‐12

Jun‐14

Jan‐16

Aug‐17

Government (rhs) Central GovernmentGovernment State Private Sector (rhs)



Projects under implementation by ownership (Rs bn)

Source: CMIE, PhillipCapital India Research (2) RBI investment related data

a. Capacity utilization data – came off in Q1FY19 at 73.8%. b. RBI industry outlook survey – except the finances, its positive/stable

i. Business situation worsened in Q2, expected to improve in Q3 ii. Business expectation remained stable to positive iii. Strong production, marginally lower order book, stable exports (with

expectations of Q3 worsening), lower imports (to further fall in Q3), employment improved in Q2 (expected to be stable in Q3).

iv. Financial situation worsened in Q2 (expected to worsen in Q3), deterioration in availability/cost of finance in Q1, Q2 and Q3.

Overall capacity utilization declined to 73.8% in Q1FY19 vs. 75.2% in Q4FY18

Source: RBI, PhillipCapital India Research Companies Order book – Weak for Infra, strong for capital goods Order Book (Rs mn) FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20EEInfra (Order Inflow) 265,783 261,979 336,086 461,651 503,689 660,000 615,000Cap goods (Order Book) 2,470,030 3,145,448 3,831,694 3,351,652 3,427,584 3,698,768 4,131,746 4,505,101 4,796,941 4,989,496 5,545,366 6,048,178Cap goods (Order Inflow) 1,631,952 1,843,497 2,113,782 1,602,621 1,921,732 2,127,391 2,415,176 2,467,621 2,483,482 2,660,207 2,980,321 3,267,634

CAPEX (Rs mn) FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20EPharma 38,235 50,116 32,801 59,477 69,516 66,076 104,301 155,143 156,441 140,795 110,855 89,687 87,017Infra 38,148 247,956 40,039 -60,831 75,132 41,792 32,856Cap goods 40,548 40,317 115,947 114,958 119,470 111,894 92,960 87,386 68,056 74,242 86,694 63,400Spec Chem 5,722 8,043 10,685 16,507 14,385 15,738 12,871 16,122 23,277 26,523 18,878Source: Companies, PhillipCapital India Research

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000Government Central Government (rhs)Government State (rhs) Private Sector

66

68

70

72

74

76

78 CU (in latest survey round)



(3) Government spending – Capex will have to be slashed to achieve prevent sharp fiscal slippage FYTD total expenditure is at 44% of BE, unchanged as compared to last year, led by lower revenue spend (44% vs. 46% last year; up 20% mom) and substantially higher capital expenditure. Capex spend is at 44% vs. 35.5% last year. For the government to achieve fiscal deficit target, capex spend will have to be slashed substantially, we believe. Ministries that fared well – Agriculture, civil aviation, defence (lower than last year), drinking water & sanitation, health, home affairs (police), PDS (lower than last year), power, railways, road transport, rural development, skill development, and textiles. Housing and urban poverty alleviation, education (sharply lower at 31% of BE vs. 47% last year, bearing the brunt of fiscal stress), and water resources remained tepid.

(4) Roads – there is a sharp fall in roads awarded by NHAI. As per our sources, it stands at 400‐450kms FYTD vs. an average of 4120km in last 5‐years. Government had targeted to reach 10,000kms in FY19.

NHAI Roads award (kms)

Source: PhillipCapital India Research

‐

2,000

4,000

6,000

8,000

10,000

12,000 Constructed Awarded



Rating Methodology We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one year. Rating Criteria Definition

BUY >= +15 Target price is equal to or more than 15 of current market price

NEUTRAL ‐15 > to < +15 Target price is less than +15 but more than ‐15

SELL <= ‐15 Target price is less than or equal to ‐15.

Disclosures and Disclaimers PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives, and Private Client Group. This report has been prepared by Institutional Equities Group. The views and opinions expressed in this document may, may not match, or may be contrary at times with the views, estimates, rating, and target price of the other equity research groups of PhillipCapital (India) Pvt. Ltd.

This report is issued by PhillipCapital (India) Pvt. Ltd., which is regulated by the SEBI. PhillipCapital (India) Pvt. Ltd. is a subsidiary of Phillip (Mauritius) Pvt. Ltd. References to "PCIPL" in this report shall mean PhillipCapital (India) Pvt. Ltd unless otherwise stated. This report is prepared and distributed by PCIPL for information purposes only, and neither the information contained herein, nor any opinion expressed should be construed or deemed to be construed as solicitation or as offering advice for the purposes of the purchase or sale of any security, investment, or derivatives. The information and opinions contained in the report were considered by PCIPL to be valid when published. The report also contains information provided to PCIPL by third parties. The source of such information will usually be disclosed in the report. Whilst PCIPL has taken all reasonable steps to ensure that this information is correct, PCIPL does not offer any warranty as to the accuracy or completeness of such information. Any person placing reliance on the report to undertake trading does so entirely at his or her own risk and PCIPL does not accept any liability as a result. Securities and Derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily an indication of future performance.

This report does not regard the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors must undertake independent analysis with their own legal, tax, and financial advisors and reach their own conclusions regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realised. Under no circumstances can it be used or considered as an offer to sell or as a solicitation of any offer to buy or sell the securities mentioned within it. The information contained in the research reports may have been taken from trade and statistical services and other sources, which PCIL believe is reliable. PhillipCapital (India) Pvt. Ltd. or any of its group/associate/affiliate companies do not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice.

Important: These disclosures and disclaimers must be read in conjunction with the research report of which it forms part. Receipt and use of the research report is subject to all aspects of these disclosures and disclaimers. Additional information about the issuers and securities discussed in this research report is available on request.

Certifications: The research analyst(s) who prepared this research report hereby certifies that the views expressed in this research report accurately reflect the research analyst’s personal views about all of the subject issuers and/or securities, that the analyst(s) have no known conflict of interest and no part of the research analyst’s compensation was, is, or will be, directly or indirectly, related to the specific views or recommendations contained in this research report.

Additional Disclosures of Interest: Unless specifically mentioned in Point No. 9 below: 1. The Research Analyst(s), PCIL, or its associates or relatives of the Research Analyst does not have any financial interest in the company(ies) covered in

this report. 2. The Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively do not hold more than 1% of the securities of the

company (ies)covered in this report as of the end of the month immediately preceding the distribution of the research report. 3. The Research Analyst, his/her associate, his/her relative, and PCIL, do not have any other material conflict of interest at the time of publication of this

research report. 4. The Research Analyst, PCIL, and its associates have not received compensation for investment banking or merchant banking or brokerage services or for

any other products or services from the company(ies) covered in this report, in the past twelve months. 5. The Research Analyst, PCIL or its associates have not managed or co‐managed in the previous twelve months, a private or public offering of securities for

the company (ies) covered in this report. 6. PCIL or its associates have not received compensation or other benefits from the company(ies) covered in this report or from any third party, in

connection with the research report. 7. The Research Analyst has not served as an Officer, Director, or employee of the company (ies) covered in the Research report. 8. The Research Analyst and PCIL has not been engaged in market making activity for the company(ies) covered in the Research report. 9. Details of PCIL, Research Analyst and its associates pertaining to the companies covered in the Research report: Sr. no. Particulars Yes/No

1 Whether compensation has been received from the company(ies) covered in the Research report in the past 12 months for investment banking transaction by PCIL

No

2 Whether Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively hold more than 1% of the company(ies) covered in the Research report

No

3 Whether compensation has been received by PCIL or its associates from the company(ies) covered in the Research report No4 PCIL or its affiliates have managed or co‐managed in the previous twelve months a private or public offering of securities for the

company(ies) covered in the Research report No

5 Research Analyst, his associate, PCIL or its associates have received compensation for investment banking or merchant banking or brokerage services or for any other products or services from the company(ies) covered in the Research report, in the last twelve months

No

Independence: PhillipCapital (India) Pvt. Ltd. has not had an investment banking relationship with, and has not received any compensation for investment banking services from, the subject issuers in the past twelve (12) months, and PhillipCapital (India) Pvt. Ltd does not anticipate receiving or intend to seek



compensation for investment banking services from the subject issuers in the next three (3) months. PhillipCapital (India) Pvt. Ltd is not a market maker in the securities mentioned in this research report, although it, or its affiliates/employees, may have positions in, purchase or sell, or be materially interested in any of the securities covered in the report.

Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or particular requirements of any individual recipient hereof. Certain securities may give rise to substantial risks and may not be suitable for certain investors. Each investor must make its own determination as to the appropriateness of any securities referred to in this research report based upon the legal, tax and accounting considerations applicable to such investor and its own investment objectives or strategy, its financial situation and its investing experience. The value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by other financial, economic, or political factors. Past performance is not necessarily indicative of future performance or results.

Sources, Completeness and Accuracy: The material herein is based upon information obtained from sources that PCIPL and the research analyst believe to be reliable, but neither PCIPL nor the research analyst represents or guarantees that the information contained herein is accurate or complete and it should not be relied upon as such. Opinions expressed herein are current opinions as of the date appearing on this material, and are subject to change without notice. Furthermore, PCIPL is under no obligation to update or keep the information current. Without limiting any of the foregoing, in no event shall PCIL, any of its affiliates/employees or any third party involved in, or related to computing or compiling the information have any liability for any damages of any kind including but not limited to any direct or consequential loss or damage, however arising, from the use of this document.

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Caution: Risk of loss in trading/investment can be substantial and even more than the amount / margin given by you. Investment in securities market are subject to market risks, you are requested to read all the related documents carefully before investing. You should carefully consider whether trading/investment is appropriate for you in light of your experience, objectives, financial resources and other relevant circumstances. PhillipCapital and any of its employees, directors, associates, group entities, or affiliates shall not be liable for losses, if any, incurred by you. You are further cautioned that trading/investments in financial markets are subject to market risks and are advised to seek independent third party trading/investment advice outside PhillipCapital/group/associates/affiliates/directors/employees before and during your trading/investment. There is no guarantee/assurance as to returns or profits or capital protection or appreciation. PhillipCapital and any of its employees, directors, associates, and/or employees, directors, associates of PhillipCapital’s group entities or affiliates is not inducing you for trading/investing in the financial market(s). Trading/Investment decision is your sole responsibility. You must also read the Risk Disclosure Document and Do’s and Don’ts before investing.

Kindly note that past performance is not necessarily a guide to future performance.

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For U.S. persons only: This research report is a product of PhillipCapital (India) Pvt Ltd., which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S.‐regulated broker‐dealer and 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.

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