Margin disappointment likely quarter-specific; mid/long-term prospects intact retain LONG

Transcription

1 Finolex Cables Ltd. Absolute : LONG Relative : Overweight 2QFY19 Results: Estimate( ), TP( ),Rating( ) Regular Coverage 18% ATR in 17 months Margin disappointment likely quarter-specific; mid/long-term prospects intact retain LONG Building Materials 2018EquirusAll rights reserved Rating Information Price (Rs) 488 Target Price (Rs) 604 Target Date Target Set On Implied yrs of growth (DCF) 15 Fair Value (DCF) 468 Fair Value (DDM) 183 Ind Benchmark Model Portfolio Position Stock Information 31st Mar'20 15th Nov'18 SPBSCGIP NA Market Cap (Rs Mn) 74,673 Free Float (%) % 52 Wk H/L (Rs) 757.9/450 Avg Daily Volume (1yr) 88,407 Avg Daily Value (Rs Mn) 56 Equity Cap (Rs Mn) 306 Face Value (Rs) 2 Bloomberg Code FNXC IN Ownership Recent 3M 12M Promoters 37.3 % 0.0 % 0.0 % DII 20.6 % -1.2 % 0.4 % FII 6.5 % 0.3 % 0.1 % Public 35.6 % 0.9 % -0.5 % Price % 1M 3M 12M Absolute 0.9 % % % Vs Industry -1.3 % -9.8 % % HAVL 14.4 % 0.0 % 35.7 % SOTL 14.7 % 0.5 % 37.9 % Standalone Quarterly EPS forecast Rs/Share 1Q 2Q 3Q 4Q EPS (18A) EPS (19E) FNXC saw a muted 2% yoy growth in its 2Q revenues to Rs 7.1bn, in line with EE. Volumes for the Electrical Cables Segment (ECS) grew slightly, while Communication Cables Segment (CCS) posted healthy growth. Gross margins slid 182bps yoy/294bps qoq to 24%, 366bps below EE. During 1Q-2Q, industry players had built up inventories on possible supply disruptions due to issues at Vedanta's Sterlite copper facility. With copper prices falling sharply, FNXC had to cut prices and take a hit on profitability; however, these issues seem quarter-specific, with margins likely to normalise from 3QE. We remain positive on FNXC s mid-to-long-term prospects and thus restate our LONG rating, but cut our target multiple from 23x to 20x as uncertainty over management control would remain a stock overhang. Our Mar 20 TP of Rs 604 (Sep 19 TP: Rs 686) is at a 20x SA TTM EPS of Rs 28.6 with Rs 94/sh ascribed to FNXP. Topline hit by multiple headwinds: ECS volumes grew marginally and were affected by (1) transport strikes, (2) Kerala floods, and (3) political agitations in Maharashtra. Kerala floods hurt ECS sales for days during 2Q. In contrast, CCS saw healthy volume growth driven by optical fibres which grew more than 25%. We see uncertainties looming during the election period and expect construction activity to remain slow. Accordingly, we marginally cut ECS volume estimates to 7.8%/10% for FY19/FY20. Inventory build-up in anticipation of supply constraints hurts gross margins: Anticipating supply constraints due to issues related to Vedanta s Sterlite copper facility, industry players had built up inventories towards June-end. However, LME copper prices declined sharply, from US$ 6,773 on 20 Jun 18 to US$ 6,145 on 11 Jul 18, forcing the company to cut product prices and take a hit on gross margins. Further, Kerala floods resulted in inventory losses for FNXC. Accordingly, gross margins (24%)/EBIDTA margins (12%) declined 182bps/205bps yoy and 294bps/408bps qoq. ECS EBITM stood at 11%, down ~250bps yoy/540bps qoq vs. a contraction of ~590bps yoy/300bps qoq in HAVL s EBITM to 14%. We feel the issues which hurt 2Q margins are quarter-specific with margins likely to normalize from 3Q onwards. We pare EBIDTA/PAT estimates largely to factor in the 2Q miss on profitability. Mid-to-long term growth prospects intact; non-business issues a stock overhang: We reiterate a LONG on FNXC, deriving comfort from multiple growth levers, viz. strong brand positioning, a wide distribution network, ambition to become a complete electrical company and favourable demand conditions for branded products. However, uncertainty over management control is a major concern, which could weigh on near-term stock performance. Accordingly, we cut our target multiple from 23x to 20x. Our Mar 20 TP of Rs 604 is set at a 20x SA TTM EPS of Rs 28.6 with Rs 94/sh ascribed to FNXP. Change in Standalone Estimates (Rs mn) FY19E Chg (%) FY20E Chg (%) Sales 31,221-2% 35,241-3% EBITDA 4,545-7% 5,361-3% EPS % % Standalone Financials Rs. Mn YE Mar FY18A FY19E FY20E FY21E Sales 28,151 31,221 35,241 39,585 EBITDA 4,223 4,545 5,361 6,029 Depreciation Interest Expense Other Income 1,274 1,208 1,524 1,987 Reported PAT 3,717 3,546 4,366 5,111 Recurring PAT 3,717 3,546 4,366 5,111 Total Equity 21,939 24,473 27,642 31,280 Gross Debt Cash 8,046 9,581 11,678 14,431 Rs Per Share FY18A FY19E FY20E FY21E Earnings Book Value Dividends FCFF P/E (x) P/B (x) EV/EBITDA (x) ROE (%) 18% 16% 17% 17% Core ROIC (%) 29% 27% 29% 30% EBITDA Margin (%) 15.0% 14.6% 15.2% 15.2% Net Margin (%) 13.2% 11.4% 12.4% 12.9% November 15, 2018 Analyst: Manoj Gori ( )/ Dhaval Dama ( ) Page 1 of 10 Before reading this report, you must refer to the disclaimer on the last page.

2 Quarterly performance, standalone % Change Rs Mn 2QFY19 2QFY19E 1QFY19 2QFY18 2QFY19E 1QFY19 2QFY18 Net Sales 7,140 7,031 7,912 7,022 2% -10% 2% In line with EE Comments Consumption of Materials 4,966 4,957 6,011 5,384 0% -17% -8% (Increase)/Decrease in stock trade and work in progress % -207% -261% Purchase of traded goods % -32% 41% Employee Cost % 9% 19% Other Expenditure % -2% -7% Total Expenditures 6,281 5,983 6,614 6,034 5% -5% 4% EBITDA 858 1,048 1, % -34% -13% Depreciation % 13% -4% Below EE due to lower than expected gross margins EBIT , % -38% -14% Other Income % 191% 7% PBT 1,329 1,568 1,398 1,421-15% -5% -6% Tax % -19% -6% Recurring PAT 929 1, % 3% -7% Extraordinaries % 155% Reported PAT 828 1, % -10% -14% EPS (Rs) % 3% -7% EBITDA Margin 12.0% 14.9% 16.4% 14.1% -288 bps -438 bps -205 bps Below EE EBIT Margin 10.5% 13.5% 15.2% 12.4% -301 bps -469 bps -197 bps PBT Margin 18.6% 22.3% 17.7% 20.2% -368 bps 94 bps -162 bps PAT Margin 11.6% 15.4% 11.6% 13.6% -379 bps -4 bps -204 bps Tax Rate 30.1% 31.0% 35.4% 29.8% -90 bps -530 bps 26 bps November 15, 2018 Analyst: Manoj Gori ( )/Dhaval Dama ( ) Page 2 of 10

3 Apr-14 Jul-14 Sep-14 Dec-14 Feb-15 May-15 Jul-15 Oct-15 Dec-15 Mar-16 May-16 Aug-16 Oct-16 Dec-16 Mar-17 May-17 Aug-17 Oct-17 Jan-18 Mar-18 Jun-18 Aug-18 Nov-18 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 Finolex Cables Ltd. Absolute LONG Relative Overweight 18% ATR in 17 Months Exhibit 1:Trend in copper prices Exhibit 2:EBITDA margin and Gross margin trends (USD/MT) 8,000 Copper USD/MT 40% Gross Margin EBITDA Margin 7,000 35% 6,000 30% 5,000 25% 4,000 20% 3,000 2,000 1, % 10% 5% 0% Source: Bloomberg, Equirus Securities Source: Company, Equirus Securities Copper prices have been trending downwards since the month of Jun 18 until Nov 18 falling from an average of USD 6,968/MT to USD 6,134/MT. From Jun 18 the prices have declined by ~10%. Players across the industry had built inventories at higher levels, while LME copper prices declined sharply resulting a material impact on their gross margins. Prior to Oct 16 the lower copper prices had led to significant reduction in price gap between organized and unorganized players. Further, strong demand environment helped the company to retain some of the benefits from lower copper prices which aided to profitability. This led to strong volume growth for FNXC along with strong profitability. However, the current scenario seems to be different as subdued demand environment and sluggishness could lead the company to pass on the entire benefit of reduction in copper prices. Hence, we don t expect profitability to improve significantly vs. the current scenario. On the other hand, we expect the price gap to narrow down between branded and unbranded products which should turn out to be positive for the company / industry. November 15, 2018 Analyst: Manoj Gori ( )/Dhaval Dama ( ) Page 3 of 10

4 Company Snapshot How we differ from Consensus EPS Sales PAT - Equirus Consensus % Diff Comment FY19E % We are below consensus considering weak FY20E % demand conditions. FY19E 31,221 31,993-2 % FY20E 35,241 36,071-2 % FY19E 3,546 3,903-9 % FY20E 4,366 4,450-2 % Our Key Investment arguments: Product profile, strong brand and equally strong business fundamentals could result in robust sales and profitability for FNXC. Key Estimates: FY18A FY19E FY20E FY21E ECS revenue 23,062 24,790 27,814 31,208 CCS revenue 4,769 5,246 5,771 6,463 Total Revenues SA 28,151 31,221 35,241 39,585 SA EBITDAM (%) 15.0% 14.6% 15.2% 15.2% SA PATM (%) 13.2% 11.4% 12.4% 12.9% Risk to Our View: Inability to pass along copper price increases and sustained downtrend in the communication cables industry. Key Triggers Success in North India and entry in fans/circuit breaker segment. Recovery in the capex cycle. Sensitivity to Key Variables % Change % Impact on EPS EBITDA Margin 1 % 6 % DCF Valuations & Assumptions Rf Beta Ke Term. Growth Debt/IC in Term. Yr 7.8 % % 3.0 % 1.3 % - FY19E FY20E FY21-23E FY24-28E FY29-33E Sales Growth 11 % 13 % 13 % 9 % 6 % NOPAT Margin 9 % 9 % 10 % 10 % 10 % IC Turnover RoIC 25.9 % 25.4 % 28.0 % 32.8 % 32.2 % Years of strong growth Valuation as on date (Rs) Valuation as of Mar' Based on DCF, assuming 15 years of 10.1% CAGR growth and 31% average ROIC, we derive our current fair value of Rs 401 and a Sep 19 fair value of Rs 468. Company Description: Finolex is a leading player in the wires industry and has product offerings in the Electrical & Communication Wires and Cables CFL Lamps and Switches segment. Finolex has a strong brand recall and is known for its quality and reliability. Comparable valuation EPS P/E BPS P/B RoE Div Yield Mkt Cap Price Target Company Reco. CMP Rs. Mn. Target Date FY18A FY19E FY20E FY18A FY19E FY20E FY18A FY19E FY18A FY19E FY20E FY18A FY19E Finolex Cables LONG , st Mar' % 18 % 18 % 0.8 % 1.1 % Havells India Ltd REDUCE , st Dec' % 21 % 22 % 0.6 % 0.7 % Sterlite Tech. LONG , st Dec' % 38 % 36 % 0.5 % 0.9 % November 15, 2018 Analyst: Manoj Gori ( )/Dhaval Dama ( ) Page 4 of 10

5 Standalone Quarterly Earnings Forecast and Key Drivers Rs in Mn 1Q18A 2Q18A 3Q18A 4Q18A 1Q19A 2Q19A 3Q19E 4Q19E 1Q20E 2Q20E 3Q20E 4Q20E FY18A FY19E FY20E FY21E Revenue 6,740 7,022 6,568 7,960 7,912 7,140 7,603 8,566 8,499 8,580 8,607 9,555 28,151 31,221 35,241 39,585 Consumption of Materials 4,913 5,384 4,687 5,454 6,011 4,966 5,360 5,996 6,034 6,049 6,068 6,688 20,300 22,333 24,839 27,898 (Increase)/Decrease in stock trade and work in progress Purchase of traded goods Employee Cost ,355 1,580 1,810 2,033 Other Expenditure ,232 2,305 2,681 3,006 EBITDA 1, ,154 1, ,125 1,264 1,385 1,278 1,274 1,424 4,223 4,545 5,361 6,029 Depreciation EBIT ,055 1, ,011 1,145 1,265 1,156 1,149 1,297 3,785 4,105 4,868 5,504 Interest Other Income ,274 1,208 1,524 1,987 PBT 1,295 1,421 1,052 1,277 1,398 1,329 1,170 1,399 1,505 1,798 1,401 1,661 5,045 5,297 6,364 7,451 Tax ,463 1,666 1,998 2,339 Recurring PAT 1, ,032 1, ,139 3,582 3,631 4,366 5,111 Extraordinary Reported PAT 1, ,032 1, ,139 3,717 3,546 4,366 5,111 EPS (Rs) Key Drivers Electrical Cable Revenue 5,717 5,635 5,221 6,489 6,380 5,626 5,950 6,834 6,675 6,759 6,815 7,565 23,062 24,790 27,814 31,208 Electric Cable Volume Growth % 10% 10% Communication Cable Revenue 1,290 1,127 1,126 1,227 1,298 1,288 1,312 1,349 1,356 1,443 1,443 1,529 4,769 5,246 5,771 6, Sequential Growth (%) Revenue -5 % 4 % -6 % 21 % -1 % -10 % 6 % 13 % -1 % 1 % 0 % 11 % Consumption of Materials 3 % 10 % -13 % 16 % 10 % -17 % 8 % 12 % 1 % 0 % 0 % 10 % EBITDA 9 % -10 % -1 % 18 % 12 % -34 % 31 % 12 % 10 % -8 % 0 % 12 % EBIT 11 % -11 % 0 % 21 % 14 % -38 % 35 % 13 % 10 % -9 % -1 % 13 % Recurring PAT 35 % -2 % -25 % 9 % 10 % 3 % -12 % 20 % 5 % 19 % -22 % 19 % EPS 35 % -2 % -25 % 9 % 10 % 3 % -12 % 20 % 5 % 19 % -22 % 19 % Yearly Growth (%) Revenue 13 % 14 % 6 % 12 % 17 % 2 % 16 % 8 % 7 % 20 % 13 % 12 % 15 % 11 % 13 % 12 % EBITDA 22 % -1 % 22 % 14 % 18 % -13 % 15 % 10 % 7 % 49 % 13 % 13 % 14 % 8 % 18 % 12 % EBIT 25 % -1 % 28 % 19 % 22 % -14 % 16 % 9 % 5 % 55 % 14 % 13 % 17 % 8 % 19 % 13 % Recurring PAT 52 % -5 % 9 % 8 % -11 % -7 % 9 % 20 % 14 % 33 % 17 % 16 % 13 % 1 % 20 % 17 % EPS 52 % -5 % 9 % 8 % -11 % -7 % 9 % 20 % 14 % 33 % 17 % 16 % 13 % 1 % 20 % 17 % Margin (%) EBITDA 16 % 14 % 15 % 14 % 16 % 12 % 15 % 15 % 16 % 15 % 15 % 15 % 15 % 15 % 15 % 15 % EBIT 15 % 12 % 13 % 13 % 15 % 10 % 13 % 13 % 15 % 13 % 13 % 14 % 13 % 13 % 14 % 14 % PBT 19 % 20 % 16 % 16 % 18 % 19 % 15 % 16 % 18 % 21 % 16 % 17 % 18 % 17 % 18 % 19 % PAT 15 % 14 % 11 % 10 % 11 % 13 % 11 % 11 % 12 % 14 % 11 % 12 % 13 % 12 % 12 % 13 % November 15, 2018 Analyst: Manoj Gori ( )/Dhaval Dama ( ) Page 5 of 10

6 Jun/10 Mar/11 Dec/11 Sep/12 Jun/13 Mar/14 Dec/14 Sep/15 Jun/16 Mar/17 Dec/17 Sep/18 Jun/19 Mar/20 Jun/10 Mar/11 Dec/11 Sep/12 Jun/13 Mar/14 Dec/14 Sep/15 Jun/16 Mar/17 Dec/17 Sep/18 Jun/19 Mar/20 Jun/10 Mar/11 Dec/11 Sep/12 Jun/13 Mar/14 Dec/14 Sep/15 Jun/16 Mar/17 Dec/17 Sep/18 Jun/19 Mar/20 Standalone Financials Finolex Cables Ltd. Absolute LONG Relative Overweight 18% ATR in 17 Months P&L (Rs Mn) FY18A FY19E FY20E FY21E Balance Sheet (Rs Mn) FY18A FY19E FY20E FY21E Cash Flow (Rs Mn) FY18A FY19E FY20E FY21E Revenue 28,151 31,221 35,241 39,585 Equity Capital PBT 5,045 5,297 6,364 7,451 Op. Expenditure 23,928 26,676 29,879 33,556 Reserve 21,633 24,167 27,336 30,975 Depreciation EBITDA 4,223 4,545 5,361 6,029 Networth 21,939 24,473 27,642 31,280 Others -1, Depreciation Long Term Debt Taxes Paid 1,345 1,666 1,998 2,339 EBIT 3,785 4,105 4,868 5,504 Def Tax Liability Change in WC Interest Expense Account Payables 1,775 2,019 2,042 2,293 Operating C/F 2,357 3,747 4,294 4,725 Other Income 1,274 1,208 1,524 1,987 Other Curr Liabi Capex ,200-1, PBT 5,045 5,297 6,364 7,451 Total Liabilities & Equity 24,760 27,660 30,947 34,940 Change in Invest -2, Tax 1,463 1,666 1,998 2,339 Net Fixed Assets 4,090 4,850 5,356 5,331 Others 1, Recurring PAT 3,717 3,546 4,366 5,111 Capital WIP Investing C/F -1,345-1,200-1, Extraordinaires Investment 5,520 5,572 5,572 5,572 Change in Debt Reported PAT 3,851 3,461 4,366 5,111 Inventory 4,991 5,474 6,179 6,941 Change in Equity EPS (Rs) Account Receivables 1,749 1,711 1,931 2,169 Others ,071-1,154-1,494 DPS (Rs) Other Current Assets Financing C/F ,012-1,197-1,473 CEPS (Rs) Cash 8,045 9,581 11,678 14,431 Net change in cash 445 1,535 2,098 2,752 FCFF (Rs) Total Assets 24,760 27,660 30,947 34,940 RoE (%) 18% 16% 17% 17% BVPS (Rs) Non-cash Working Capital 4,656 4,895 5,460 6,371 RoIC (%) 17% 15% 17% 17% Sales Growth (%) 15% 11% 13% 12% Cash Conv Cycle Core RoIC (%) 29% 27% 29% 30% PAT Growth(%) 13% 1% 20% 17% WC Turnover P/E EPS Growth (%) 13% 1% 20% 17% FA Turnover P/BV EBITDAM (%) 15% 15% 15% 15% D/E EV/EBITDA PATM (%) 13% 11% 12% 13% Net D/E EV/Sales Tax Rate (%) 29% 31% 31% 31% Interest Coverage Dividend Yield (%) 1% 1% 1% 2% TTM P/E vs. 2 yr forward EPS growth TTM P/B vs. 2 yr forward RoE TTM EV/EBITDA vs. 2 yr forward EBITDA EPS Growth 50% 40% 30% 20% 10% 0% -10% -20% -30% 17x 14x 12x 8x 4x RoE 35% 30% 25% 20% 15% 10% 5% 0% 5x 4x 3x 2x 1x EBITDA Growth 40% 16x 32% 13x 24% 10x 16% 7x 4x 8% 0% November 15, 2018 Analyst: Manoj Gori ( )/Dhaval Dama ( ) Page 6 of 10

7 Historical Standalone Financials Finolex Cables Ltd. Absolute LONG Relative Overweight 18% ATR in 17 Months P&L (Rs Mn) FY15A FY16A FY17A FY18A Balance Sheet (Rs Mn) FY15A FY16A FY17A FY18A Cash Flow (Rs Mn) FY15A FY16A FY17A FY18A Revenue 24,491 25,747 24,448 28,151 Equity Capital PBT 2,631 3,364 4,193 5,045 Op. Expenditure 21,668 22,359 20,734 23,928 Reserve 13,575 15,650 18,469 21,633 Depreciation EBITDA 2,823 3,389 3,714 4,223 Networth 13,880 15,955 18,774 21,939 Others ,474-1,541 Depreciation Long Term Debt Taxes Paid ,286 1,345 EBIT 2,183 2,809 3,234 3,785 Def Tax Liability Change in WC Interest Expense Account Payables ,883 1,775 Operating C/F 1,827 2,756 2,128 2,357 Other Income ,002 1,274 Other Curr Liabi 2,066 1, Capex PBT 2,631 3,364 4,193 5,045 Total Liabilities & Equity 17,359 19,183 21,762 24,760 Change in Invest -1,878-1,348-2,002-2,747 Tax ,034 1,463 Net Fixed Assets 4,719 4,322 4,149 4,090 Others ,091 1,771 Recurring PAT 1,987 2,413 3,197 3,717 Capital WIP Investing C/F -1,863-1,275-1,261-1,345 Extraordinaires Investment 3,198 3,004 4,977 5,520 Change in Debt Reported PAT 1,987 2,337 3,234 3,851 Inventory 3,111 3,293 4,620 4,991 Change in Equity EPS (Rs) Account Receivables 1,186 1,259 1,244 1,749 Others DPS (Rs) Other Current Assets Financing C/F CEPS (Rs) Cash 4,269 6,253 6,463 8,045 Net change in cash FCFF (Rs) Total Assets 17,359 19,183 21,762 24,760 RoE (%) 16% 17% 18% 18% BVPS (Rs) Non-cash Working Capital RoIC (%) 15% 16% 18% 17% Sales Growth (%) 4% 5% -5% 15% Cash Conv Cycle Core RoIC (%) 20% 26% 29% 29% PAT Growth (%) -4% 25% 27% 13% WC Turnover P/E EPS Growth (%) -4% 24% 29% 13% FA Turnover P/BV EBITDAM (%) 12% 13% 15% 15% D/E EV/EBITDA PATM (%) 8% 9% 13% 13% Net D/E EV/Sales Tax Rate (%) 25% 26% 25% 29% Interest Coverage Dividend Yield (%) 0% 1% 1% 1% November 15, 2018 Analyst: Manoj Gori ( )/Dhaval Dama ( ) Page 7 of 10

8 Equirus Securities Research Analysts Sector/Industry Equity Sales Abhishek Shindadkar IT Services Vishad Turakhia Ashutosh Tiwari Auto, Metals & Mining Subham Sinha Bharat Celly Healthcare Viral Desai Depesh Kashyap Mid-Caps Viraj Mehta Dhaval Dama FMCG, Mid-Caps Ruchi Bhadra Manoj Gori Consumer Durables Cash Dealing Room Maulik Patel Oil and Gas Ashish Shah Pranav Mehta Building Materials Ilesh Savla Praful Bohra Healthcare Manoj Kejriwal Rohan Mandora Banking & Financial Services Dharmesh Mehta Associates Sarit Sanyal Ankit Choudhary Vikram Patil Dhairya Dhruv Gaurav Mehta Harshit Patel Compliance Officer Nishant Bagrecha Jay Soni Prateeksha Malpani Corporate Communications Ronak Soni Mahdokht Bharda Rushabh Shah Quant Analyst Shreepal Doshi Kruti Shah Varun Baxi F&O Dealing Room Vikas Jain Kunal Dand Rating & Coverage Definitions: Absolute Rating LONG : Over the investment horizon, ATR >= Ke for companies with Free Float market cap >Rs 5 billion and ATR >= 20% for rest of the companies ADD: ATR >= 5% but less than Ke over investment horizon REDUCE: ATR >= negative 10% but <5% over investment horizon SHORT: ATR < negative 10% over investment horizon Relative Rating OVERWEIGHT: Likely to outperform the benchmark by at least 5% over investment horizon BENCHMARK: likely to perform in line with the benchmark UNDERWEIGHT: likely to under-perform the benchmark by at least 5% over investment horizon Investment Horizon Investment Horizon is set at a minimum 3 months to maximum 18 months with target date falling on last day of a calendar quarter. Lite vs. Regular Coverage vs. Spot Coverage We aim to keep our rating and estimates updated at least once a quarter for Regular Coverage stocks. Generally, we would have access to the company and we would maintain detailed financial model for Regular coverage companies. We intend to publish updates on Lite coverage stocks only an opportunistic basis and subject to our ability to contact the management. Our rating and estimates for Lite coverage stocks may not be current. Spot coverage is meant for one-off coverage of a specific company and in such cases, earnings forecast and target price are optional. Spot coverage is meant to stimulate discussion rather than provide a research opinion. Dhananjay Tiwari dhananjay.tiwari@equirus.com Mukesh Jain Mukesh.jain@equirus.com Registered Office: Equirus Securities Private Limited Unit No. 1201, 12th Floor, C Wing, Marathon Futurex, N M Joshi Marg, Lower Parel, Mumbai Tel. No: +91 (0) Fax No: +91- (0) Corporate Office: 3rd floor, House No. 9, Magnet Corporate Park, Near Zydus Hospital, B/H Intas Sola Bridge, S.G. Highway Ahmedabad Gujarat Tel. No: +91 (0) Fax No: +91 (0) November 15, 2018 Analyst: Manoj Gori ( )/Dhaval Dama ( ) Page 8 of 10

9 2018 Equirus Securities Private Limited. All rights reserved. For Private Circulation only. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Equirus Securities Private Limited Analyst Certification I, Manoj Gori/Dhaval Dama, author to this report, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. Disclosures Equirus Securities Private Limited (ESPL) having Corporate Identification Number U65993MH2007PTC is registered in India with Securities and Exchange Board of India (SEBI) as a trading member on the Capital Market (Reg. No. INB ), Futures & Options Segment (Reg. No.INF ) of the National Stock Exchange of India Ltd. (NSE) and on Cash Segment (Reg. No.INB ) of Bombay Stock Exchange Limited (BSE).ESPL is also registered with SEBI as Research Analyst under SEBI (Research Analyst) Regulations, 2014 (Reg. No. INH ), as a Portfolio Manager under SEBI (Portfolio Managers Regulations, 1993 (Reg. No.INP ) and as a Depository Participant of the Central Depository Services (India) Limited (Reg. No.IN-DP ). There are no disciplinary actions taken by any regulatory authority against ESPL. ESPL is a subsidiary of Equirus Capital Pvt. Ltd. (ECPL) which is registered with SEBI as Category I Merchant Banker and provides investment banking services including but not limited to merchant banking services, private equity, mergers & acquisitions and structured finance. As ESPL and its associates are engaged in various financial services business, it might have: - (a) received compensation (except in connection with the preparation of this report) from the subject company for investment banking or merchant banking or brokerage services in the past twelve months;(b) managed or co-managed public offering of securities for the subject company in the past twelve months; or (c) have received a mandate from the subject company; or (d) might have other financial, business or other interests in entities including the subject company (ies) mentioned in this Report. ESPL & its associates, their directors and employees may from time to time have positions or options in the company and buy or sell the securities of the company (ies) mentioned herein. ESPL and its associates collectively do not own (in their proprietary position) 1% or more of the equity securities of the subject company mentioned in the report as the last day of the month preceding the publication of the research report. ESPL or its Analyst or Associates did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ESPL nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. ESPL has not been engaged in market making activity for the subject company. The Research Analyst engaged in preparation of this Report:- (a) has not received any compensation from the subject company in the past twelve months; (b) has not managed or co-managed public offering of securities for the subject company in the past twelve months; (c) has not received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (d) has not received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (e) has not received any compensation or other benefits from the subject company or third party in connection with the research report; (f) might have served as an officer, director or employee of the subject company; (g) is not engaged in market making activity for the subject company. This document is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ESPL and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to a certain category of investors. Persons in whose possession of this document are required to inform themselves of, and to observe, such applicable restrictions. Please delete this document if you are not authorized to view the same. By reading this document you represent and warrant that you have full authority and all rights necessary to view and read this document without subjecting ESPL and affiliates to any registration or licensing requirement within such jurisdiction. This document has been prepared solely for information purpose and does not constitute a solicitation to any person to buy, sell or subscribe any security. ESPL or its affiliates are not soliciting any action based on this report. The information and opinions contained herein is from publicly available data or based on information obtained in good faith from sources believed to be reliable but ESPL provides no guarantee as to its accuracy or completeness. The information contained herein is as on date of this report, and is subject to change or modification and any such changes could impact our interpretation of relevant information contained herein. While we would endeavour to update the information herein on reasonable basis, ESPL and its affiliates, their directors and employees are under no obligation to update or keep the information current. Also there may be regulatory, compliance, or other reasons that may prevent ESPL and its group companies from doing so. This document is prepared for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document including the merits and risks involved. This document is intended for general circulation and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. ESPL and its group companies, employees, directors and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. ESPL/its affiliates do and seek to do business with companies covered in its research report. Thus, investors should be aware that the firm may have conflict of interest. November 15, 2018 Analyst: Manoj Gori ( )/Dhaval Dama ( ) Page 9 of 10

10 A graph of daily closing prices of securities is available at and (Choose a company from the list on the browser and select the three years period in the price chart). Disclosure of Interest statement for the subject Company Yes/No If Yes, nature of such interest Research Analyst or Relatives financial interest No Research Analyst or Relatives actual/beneficial ownership of 1% or more No Research Analyst or Relatives material conflict of interest No Disclaimer for U.S. Persons Equirus Securities Private Limited (ESPL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In addition ESPL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by ESPL, including the products and services described herein are not available to or intended for U.S. persons. This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., ESPL has entered into a chaperoning agreement with a U.S. registered broker-dealer name called Xtellus Capital Partners, Inc, (''XTELLUS'). Any business interaction pursuant to this report will have to be executed within the provisions of this chaperoning agreement. "U.S. Persons" are generally defined as a natural person, residing in the United States or any entity organized or incorporated under the laws of the United States. US Citizens living abroad may also be deemed "US Persons" under certain rules. The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, XTELLUS, and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account. November 15, 2018 Analyst: Manoj Gori ( )/Dhaval Dama ( ) Page 10 of 10