JSW Steel (JSWSTE) 263

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1 Result Update Rating matrix Rating : Buy Target : 295 Target Period : 12 months Potential Upside : 12% What s Changed? Target Changed from 240 to 295 EPS FY18 Changed from 20.8 to 19.8 EPS FY19E Changed from 22.0 to 25.0 Rating Unchanged Quarterly Performance (Consolidated) Q2FY18 Q2FY17 YoY (%) Q1FY18 QoQ (%) Adj. Rev. 16,818 13, , EBITDA 3,036 2, , EBITDA (%) bps bps PAT Key Financials ( Crore) FY16 FY17 FY18E FY19E Net Revenues 41,879 55,605 64,973 70,822 EBITDA 6,073 12,174 13,600 15,620 Adj Net Profit 1,383 3,467 4,793 6,049 Adj EPS ( ) Valuation summary FY16 FY17 FY18E FY19E PE (x) NA Target PE (x) NA EV/EBITDA (x) P/BV (x) Adj RoNW (%) Adj RoCE (%) *The ratios are calculated post the stock split of 10:1 Stock data Particular Amount Market Capitalisation crore Debt-Cons. (FY17) crore Cash Cons. (FY17) 1485 crore EV crore 52 week H/L 272 / 151 Equity capital crore Face value 1 Price performance (%) Return % 1M 3M 6M 12M JSW Steel Tata Steel Research Analyst Dewang Sanghavi dewang.sanghavi@icicisecurities.com Akshay Kadam akshay.kadam@icicisecurities.com Performance set to improve. November 1, 2017 JSW Steel (JSWSTE) 263 For Q2FY18, JSW Steel reported a subdued performance on the operational front. The topline was above our estimates on account of higher sales volume while profitability was below our estimates. Standalone operations reported a muted EBIDTA/tonne on account of lower-than-anticipated sales realisations Sales volume for the quarter came in at 3.92 million tonnes (MT), up 2.1% YoY, 11.7% QoQ, higher than our estimate of 3.6 MT. The consolidated topline for the quarter was at crore (up 27.1% YoY, down 14.4% QoQ) higher than our estimate of crore Standalone operations posted an EBITDA/tonne of 7467/tonne, lower than our estimate of 9000/tonne (Q1FY18: 6262/tonne, Q2FY17: 7077/tonne) Consolidated EBITDA was at 3036 crore (up 2.6% YoY, 16.0% QoQ, our estimate: crore). Ensuing consolidated PAT was at 829 crore Chalks out sizable capex plan in pursuit of organic growth JSW Steel aims to double its capacity at its Dolvi plant from 5 MT to 10 MT and further upgrade and revamp its downstream facilities. The company has outlined capex of crore of which crore is towards expansion and upgradation of projects, 3235 crore towards other cost savings projects, 1580 crore amounts to Ind-As impact of 1.5 MTPA coke oven at Dolvi Coking Projects ( 1050 crore), mining projects ( 530 crore) while the balance 2800 crore pertains to capex carried forward from FY17. The company has guided for a capex of 8000 crore in FY18 while the rest of the capex worth crore will roll over to FY Maintains sales volume guidance of 15.5 MT for FY18E For FY18E, the management has maintained the sales volume guidance of 15.5 MT implying growth of 5% YoY. Though steel production during the cumulative period of H1FY18 has been impacted by rollout of GST (disrupting iron ore supply in Karnataka, impacting Vijayanagar plant) and water shortage in Tamil Nadu (impacting Salem facility), the management remains confident of covering the shortfall in H2FY18. Accordingly, we model sales volume estimate of 15.5 MT for FY18E and upward revise the same for FY19E to MT (from 16.0 MT earlier). Volume surprises positively, maintain BUY... JSW Steel reported healthy volumes of 3.9 million tonne (MT) for the quarter, up 2% YoY, 12% QoQ. The performance was, however, subdued on the operational performance front on account of lower-thananticipated realisation. Going forward, we expect realisations to increase in the backdrop of firming up of domestic steel prices. Going forward, we model EBITDA/tonne of 8000/tonne for FY18E (downward revised from 8250/tonne earlier) and 9000/tonne for FY19E (upward revised from 8500/tonne earlier). We value the stock on an SOTP basis, assigning 6.5x FY19E EV/EBITDA for the core and factoring CWIP till FY19E in our valuations at 0.8x book. Thus, we arrive at a target price of 295. We maintain our BUY recommendation on the stock. ICICI Securities Ltd Retail Equity Research

2 E Variance analysis Q2FY18 Q2FY18E Q2FY17 YoY (%) Q1FY18 QoQ (%) Comments Adjusted Revenue (net of excise) 16, , , , Topline came in higher than our estimates Other Income Employee Expense Raw Material Expense 9, , , , Power & Fuel Expense 1, , , , Other operating Expenses 2, ,122 2, , EBITDA 3, , , , EBITDA came in lower than our estimates EBITDA Margin (%) bps bps EBITDA margin came in below our estimates Depreciation Interest Exceptional Item PBT 1, , , Tax Outgo PAT , Minority Interest, Share of Associate &Extra Ordinary Item (7.0) PAT for the Group , PAT came in lower than our estimates Key Metrics Steel Sales (MT) Sales volume came in higher than our estimates Standalone EBITDA/tonne ( ) EBITDA/tonne came in lower than our estimates Change in estimates FY18E FY19E FY17 ( Crore) Old New % Change Old New % Change Comments Revenue 55,605 65,165 64,973 (0.3) 69,259 70, Downward revised estimates for FY18E, upward revised for FY19E on all broad parameters EBITDA 12,174 13,988 13,600 (2.8) 14,802 15, EBITDA Margin (%) bps bps EBITDA ( /tonne) (3.0) PAT (4.6) EPS ( ) (4.6) , *-Standalone entity Assumptions Current Earlier FY16 FY17 FY18E FY19E FY18E FY19E Comments Total Steel Sales (MT) Upward revised sales volume estimate for FY19E EBITDA/tonne ( /tonne)* 4,725 7,738 8,000 9,000 8,250 Downward revised EBITDA/tonne estimate for FY18E, upward revised 8,500 for FY19E, *-Standalone entity ICICI Securities Ltd Retail Equity Research Page 2

3 million tonne /tonne Company Analysis JSW Steel augmented its steel producing capacity from 14.3 MT to 18.0 MT during the year FY16. The capacity of its Vijayanagar plant in Karnataka was increased to 12.0 MT from 10.0 MT. The plant capacity at Dolvi, Maharashtra was enhanced to 5.0 MT from earlier 3.3 MT while the plant capacity at Salem, Tamil Nadu was at 1 MT. Registers healthy sales volume growth of 23% in FY17... On the back of completion of capacity enhancements undertaken during H2FY16, JSW Steel registered strong volume growth of ~23% YoY in FY17. The sales volume during the year was at 15.8 MT against 12.6 MT in FY16. For FY18E, JSW Steel has guided crude steel production and saleable steel sales guidance of 16.5 MT and 15.5 MT, respectively, implying growth in sales volumes of 5%. We model sales volume on the same lines with 15.5 MT for FY18E, MT for FY19E. Exhibit 1: Sales volume trend Exhibit 2:..EBITDA/tonne to firm up going forward FY16 FY17 FY18E FY19E 0 FY16 FY17 FY18E FY19E Wins five iron ore mines through auction In the auctions held in September 2016 of category C iron ore mines in Karnataka, JSW Steel bagged five mines. The estimated resources in these five mines as per tender documents are ~111 million tonnes (MT). The mineable content from these mines is estimated to be ~93.0 MT. The annual capacity of these mines are together at ~4.7 MT. The management is in the process of acquiring forest clearance. The management envisages commercialising two of the mines with a capacity of ~0.71 MT by end of CY17 incurring a capex of ~ 154 crore. The remaining three mines (~3.95 MT) will be made operational by the end of January 2018 incurring a capex of ~ 220crore. The management indicated that the Supreme Court is yet to relax the iron ore production cap of 30 million tonne (MT) in Karnataka. They expect a favourable order to come through post which the company envisages commencing two of its iron ore mines within two months and all five mines within five months. Exhibit 3: : Mines where JSW has emerged as preferred bidder... Sr. No Name of Mine Est. Resource (MT) 1 Ram Rao Paol Tungabhadra Minerals Pvt Ltd Tungabhadra Minerals Pvt Ltd Hothur Traders V S Lad & Sons 28.6 Source: Source: Department of Mines and Geology (Government of Karnataka), ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 3

4 In pursuit of organic growth, chalks out sizable capex plan The Government of India approved National Steel Policy (NSP), 2017 provides a long term vision to provide a thrust to the steel sector. The policy aims to enhance domestic steel consumption, ensuring high quality steel production, and create a technologically advanced and globally competitive steel industry. JSW Steel has approved key new investment projects to expand its overall steelmaking capacity, lower operating costs and enrich its product mix, along with few other strategic projects. The company aims to double its capacity at its Dolvi from 5 MT to 10 MT and further upgrade, revamp its downstream facilities. The company has outlined a capex of crore. Of this, crore is towards expansion and upgradation of projects, 3235 crore towards other cost savings projects, 1580 crore is the Ind-As impact of 1.5 MTPA coke oven at DCPL & mining while the balance 2800 crore pertains to capex carried forward from FY17. The company will expend ~ 8000 crore during FY18 while the rest of the capex amounting to crore will be rolled over to FY The company is setting up projects at a competitive cost while returns from the same are likely to be accretive. Our back of the envelope calculation indicates per tonne cost incurred by JSW Steel for setting up a brownfield facility of 5 MT at Dolvi comes to around US$460/tonne. Exhibit 4: Capital Expenditure plan over FY18-21 Key Projects Project Cost Timeline Description Dolvi: increasing steel making capacity to 10 MT from current 5 MT crore Mar-20 Total capacity will be increased from 5 MT to 10 MT. The major facilities to be set-up under the expansion project are 4.5 MT Blast furnace with 5 MT Steel Melt Shop, 5.75 MT Sinter plant, 4 MT Pellet plant, and 4 Kilns of 600 TPD LCPs and 5 MT Hot Strip Mill. Vijaynagar: BF-3 revamp and upgradation 1000 crore 20 Months BF-3 capacity will be increased from 3 MT to 4.5 MT after the revamp and up-gradation project. Overall Vijayanagar works capacity will remain at 12 MT as existing high cost operations at BF-2 will be shut down post completion of this project. Vijayanagar: CRM-1 complex capacity expansion Vasind and Tarapur : modernisation-cumcapacity enhancement 2000 crore Sep crore Apr-19 CRM1 complex capacity will be increased from 0.85 MT to 1.80 MT along with two continuous galvanizing line of 0.45 MT each, a new 1.2 MT continuous pickling line for HRPO products, and a new 0.80 MT HR skin pass mill for HR Black & HRSPO products. The modernisation cum capacity enhancement project includes increase in cold rolling capacity from 1.16 MT to 2.12 MT by replacing exisitng CR mills with Batch Tandem CR mills, increase in GI/GL capacity by 0.63 MT & increase in colour coating capacity by 0.08 MT. ICICI Securities Ltd Retail Equity Research Page 4

5 crore Cash flow to likely fund capex On a consolidated basis, at the end of Q2FY18, the net gearing was at 1.87x (1.97x at the end of Q1FY18) while net debt to EBITDA was at 3.67x (3.76x at the end of Q1FY18). On a standalone basis, at the end of Q1FY18, net gearing was at 1.62x (1.71x at the end of Q1FY18) while net debt to EBITDA was at 3.66x (3.81x at the end of Q1FY17). Despite improving cash flows, we do not expect any debt repayment in the medium term as the cash-flows generated would largely be deployed towards the ongoing capex. Exhibit 5: Gross debt & net debt trend FY15 FY16 FY17 FY18E FY19E Gross Debt Net Debt Performance of subsidiaries JSW Steel Coated Products JSW Steel Coated Products reported sales volume of 0.56 million tonnes. The revenue from operations came in at 3416 crore (up 43% YoY, 12% QoQ). The company reported an EBITDA of 141 crore (down 16% YoY, 31% QoQ). The PAT came in at 53 crore (vs. Q2FY17: 79 crore, Q1FY18: 117 crore). US plate and pipe mill The US based plate and pipe mill produced net tonnes of plates and net tonnes of pipes, reporting a capacity utilisation of 22% and 8%, respectively. The sales volume was at net tonne of plates and net tonne of pipes. The subsidiary reported EBITDA of US$1.0 million (vs. Q2FY17: US$0.22 million, Q1FY18: US$5.1 million). ICICI Securities Ltd Retail Equity Research Page 5

6 Key takeaway from conference call WSA expects world steel demand to grow at 2.8% in CY17 more than double the growth rate expected earlier Steel exports from China have reduced in the last quarter with closure of inefficient production facilities and continued strong domestic demand Globally, steel prices have strengthened with improved demand outlook, production discipline and support from raw material prices During the last quarter, steel imports in India increased sharply in the last quarter displacing domestic volumes. A surge in imports of flat products met the entire flat products consumption during the quarter. The management indicated rising imports of defective material and import of substandard products under the garb of prime products, especially in the coated segment is alarming During the quarter, overall sales volume grew ~4% YoY. While the overall value added & special products sales grew ~17% YoY o CRCA sales grew 11% YoY, galvanised sales grew 9%, colour coated sales grew 30% YoY and Electric sales grew 30% YoY o Sales to automotive customers grew 22% YoY, appliance segment sales grew 71% YoY while sales to solar segment grew 67% YoY Retail sales improved 24% QoQ as the effects of GST rollout on channel demand is stabilising The management expects steel demand to improve further with government focus on infrastructure build up like roads, DFC, water & gas pipelines, metro, irrigation projects, solar energy, power T&D, etc. The management indicated bank recapitalisation will pave the way for an up-tick in credit growth and possible restart of investment cycle The production was at similar levels QoQ due to less iron ore availability at the Vijayanagar plant as Karnataka did not conduct the quarterly iron ore auction, due to rollout of GST. Further, the continued water shortage in Karnataka impacted production in Q2FY18 The performance of the US subsidiary was impacted by Hurricane Harvey. The management indicated the performance will normalise in coming quarters The management indicated the spike in imports during the quarter dragged realisations. Prices of flat products and colour coated products were under pressure due to dumping by China and Vietnam Imports of colour coated products were non-compliant with BIS. However, the new list is to be implemented from January18, including colour coated products. However, the anti-dumping duty will be applicable on products from China and not Vietnam due to the free trade agreement with the country The company incurred a capex of 2196 crore in H1FY18 with a cash outflow of 2000 crore The Supreme Court is yet to relax the iron ore production cap of 30 million tonne (MT) in Karnataka. The management is expecting a favourable order to come through. Post this, the company envisages commencing two of its iron ore mines within two months and all five mines within five months The captive consumption of iron ore will enhance the profitability as the company will not have to bear the premium of ~ 600/tonne charged by NMDC in Karnataka The company expects coking coal prices to increase by US$5-10/tonne in Q3FY18. The management indicated the benefit of the softening in coking coal prices is likely to come in Q4FY18 ICICI Securities Ltd Retail Equity Research Page 6

7 The company had contracted ~25% of total sales volume during the quarter at fixed prices. The management is in the process of renegotiating contracts for H2FY18 The company is looking to operate stressed downstream assets on a similar tie-up model as Uttam Galva. The same would lead to increase in working capital requirement of the company in the coming quarter The management reiterated its sales volume guidance of 5% YoY growth in FY18E (15.5 MT). JSW Steel maintained its production guidance for FY18E of 16.5 MT indicating that it intends to cover the shortfall witnessed in H1FY18 in H2FY18 ICICI Securities Ltd Retail Equity Research Page 7

8 Valuation JSW Steel reported healthy volumes of 3.9 million tonne (MT) for the quarter up 2% YoY, 12% QoQ. The performance was, however, subdued on the operational performance front on account of lower-thananticipated realisation. Going forward, we expect the realisation to increase in the backdrop of firming up of domestic steel prices. Going forward, we model EBITDA/tonne of 8000/tonne for FY18E (downward revised from 8250/tonne earlier) and 9000/tonne for FY19E (upward revised from 8500/tonne earlier). We value the stock on a SOTP basis. We assign 6.5x FY19E EV/EBITDA for the core and factor CWIP till FY19E in our valuations at 0.8x book to arrive at a target price of 295. We maintain BUY recommendation on the stock. Exhibit 6: Target price calculation Particular Unit Value EBITDA crore EV/EBITDA Multiple x 6.5 Enterprise Value (EV) crore Gross Debt crore Cash & Cash Eq crore 2709 Net Debt crore FY19E CWIP (@0.8x) crore Implied Market Cap crore No of Shares crore Target Price 295 Exhibit 7: Valuation Matrix Sales ( Crore) Growth (% YoY) EPS ( ) Growth (% YoY) PE (x) EV/EBIDTA (x) P/ BV (x) RoNW RoCE (%) (%) FY FY PL NM FY FY18E FY19E ICICI Securities Ltd Retail Equity Research Page 8

9 (%) ( ) Recommendation History vs. Consensus Oct-15 Jan-16 Mar-16 Jun-16 Aug-16 Oct-16 Jan-17 Mar-17 Jun-17 Aug Oct-17 Source: Bloomberg, Company, ICICIdirect.com Research Price Idirect target Consensus Target Mean % Consensus with BUY Key events Date Apr-17 Apr-17 May-17 May-17 Jun-17 Jun-17 Event JSW Steel initiates plans to restructure and consolidate its global operations and holding structure, including operations in the US and Chile. In line with the current market dynamics, the company has implemented a reorganisation plan, which broadly entails : a. capital reduction at Netherlands company level; b. Transfer of certain assets and liabilities to another wholly-owned subsidiary company, Peruana Holding LLC in US ; and c. liquidation of JSW Steel (US) Inc. (US holding company) JSW Steel raises $500 million (~ 3,234 crore) through an issue of fixed rated senior unsecured notes. The notes will be listed on the Singapore Exchange Securities Trading As per media sources, JSW Steel is likely to set up a 10 million tonne (MT) steel plant in Odisha on the land acquired for the Posco steel project. The company is likely to invest crore on the steel plant and 900 MW power plant JSW Steel reports production numbers for April The crude steel production during the month came in at 12.9 lakh tonne (LT) up 7% YoY. The production of flat rolled products stood at 9.32 LT up 5%YoY, while the production of Long (rolled products) increased 12% YoY to 2.96 LT. The board of JSW Steel has approved raising of long term funds. Accordingly, the company will raise 4000 crore through issuance of non-convertible debentures with warrants or equity shares or fully/partially/optionally convertible debentures to qualified institutional buyers by way of QIP. Furthermore, the board has also approved raising US$1 billion through issue of foreign currency convertible bonds/adr/gdr/warrants or other instruments convertible into equity shares optionally or otherwise in course of an international offering, in one or more foreign markets The board of directors of JSW Steel has approved setting up of a slurry pipeline to transport iron ore from coastal Karnataka to the Vijayanagar works. The construction of the pipeline is likely to take 24 months at an estimated cost of 2100 crore. The same would enable the company to transport iron ore at a competitive 15% cost of alternate means of transport. Furthermore, the pipeline will help the company source almost 50% of the current iron ore requirement at Vijayanagar works from outside Karnataka either from imports or from Odisha/eastern sector at prices lower than prevailing prices in Karnataka JSW Steel has recieved all statutory clearances for two out of five iron ore mines that it won in Karnataka. The company had participated in auctions of iron ore Sep-17 mines and won five mines in October 2016, which have estimated reserves of 111 million tonnes. The forest clearance for the remaining three mines is likely to be received in the next six to nine months Top 10 Shareholders Rank Name Latest Filing Date % O/S Position (m) Change (m) 1 Jindal Organisation 30-Sep JFE Steel Corporation 30-Sep Vividh Consultancy & Advisory Services Pvt. Ltd. 30-Sep Sahyog Tradecorp Pvt. Ltd. 30-Sep M. M. Warburg Bank (Schweiz) AG 30-Sep Danta Enterprises Pvt. Ltd. 30-Sep Virtuous Tradecorp Pvt. Ltd. 30-Sep Gagandeep Credit Capital Pvt. Ltd. 30-Sep The Vanguard Group, Inc. 30-Sep Dimensional Fund Advisors, L.P. 30-Sep Source: Reuters, ICICIdirect.com Research Shareholding Pattern in (%) Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Promoters FII DII Others Recent Activity Buys Sells Investor Name Value (M) Shares(M) Investor Name Value (M) Shares(M) Mellon Capital Management Corporation ICICI Prudential Asset Management Co. Ltd Aditya Birla Sun Life AMC Limited Morgan Stanley Investment Management (Singapore) Kotak Mahindra Asset Management Company Ltd Lyxor Asset Management Reliance Nippon Life Asset Management Limited Amundi Asset Management SBI Funds Management Pvt. Ltd JSW Steel Employees Welfare Trust Source: Reuters, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 9

10 Financial summary (Cons.) Profit and loss statement ( crore) (Year-end March) FY16 FY17 FY18E FY19E Total operating Income 41, , , ,821.7 Growth (%) Raw Material Expenses 22, , , ,386.7 Employee Expenses 1, , , ,104.2 Power and Fuel Costs 3, , , ,546.8 Mfg and Other expenses 7, , , ,163.6 Total Operating Expenditure 35, , , ,201.3 EBITDA 6, , , ,620.4 Growth (%) Depreciation 3, , , ,688.7 Interest 3, , , ,598.8 Other Income PBT , , ,583.0 Exceptional Item -2, Total Tax -1, , , ,553.4 Reported PAT Before MI , , ,029.5 Profit/(loss) - JV/MI/Associate Reported PAT After MI , , ,049.3 Growth (%) PL NA Adj PAT after MI 1, , , ,049.3 Adj 'EPS ( ) Balance sheet ( crore) (Year-end March) FY16 FY17 FY18E FY19E Liabilities Share Capital Reserve and Surplus 21, , , ,696.5 Total Shareholders funds 21, , , ,997.8 Total Debt 39, , , ,435.2 Deferred Tax Liability 1, , , ,073.6 Minority Interest / Others Total Liabilities 63, , , ,999.1 Assets Gross Block 83, , , ,988.6 Less: Acc Depreciation 27, , , ,450.7 Net Block 56, , , ,537.9 Capital WIP 6, , , ,381.4 Total Fixed Assets 62, , , ,919.3 Investments , , ,567.1 Inventory 8, , , ,247.7 Debtors 2, , , ,761.3 Loans and Advances 6, , , ,559.7 Other Current Assets , , ,081.8 Cash , , ,408.8 Total Current Assets 19, , , ,059.4 Current Liabilities 18, , , ,418.2 Provisions Total Current Liabilities 19, , , ,631.0 Net Current Assets , , ,428.4 Deferred tax Assets (net) Application of Funds 63, , , ,999.1 Cash flow statement ( crore) (Year-end March) FY16 FY17 FY18E FY19E Profit after Tax , , ,049.3 Add: Depreciation 3, , , ,688.7 (Inc)/dec in Current Asset 4, , , ,226.2 Inc/(dec) in CL&Provisions -4, , ,277.2 Others -1, , CF from operating activities , , ,789.1 (Inc)/dec in Investments (Inc)/dec in Fixed Assets -5, , , ,000.0 Others CF from investing activities -4, , , ,050.0 Issue/(Buy back) of Equity Inc/(dec) in loan funds 4, , , ,098.8 Dividend paid & dividend tax Inc/(dec) in Sec. premium , Others CF from financing activities 3, , , ,585.0 Net Cash flow -1, ,154.0 Opening Cash 1, , ,254.8 Closing Cash , , ,408.8 Key ratios (Year-end March) FY16 FY17 FY18E FY19E Per share data ( ) Adj EPS Cash EPS BV DPS Cash Per Share Operating Ratios (%) EBITDA Margin PBT / Total Operating income Adj PAT Margin Inventory days Debtor days Creditor days Return Ratios (%) Adj RoE Adj RoCE RoIC Valuation Ratios (x) P/E EV / EBITDA EV / Net Sales Market Cap / Sales Price to Book Value Solvency Ratios Debt/EBITDA Debt / Equity Current Ratio Quick Ratio ICICI Securities Ltd Retail Equity Research Page 10

11 ICICIdirect.com coverage universe (Metals & Mining) Company CMP M Cap EPS ( ) P/E (x) EV/EBITDA (x) ROCE(%) ROE(%) ( ) TP ( ) Rating ( Cr) FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E Coal India Hold Hindalco Buy Hindustan Zinc Buy JSW Steel Buy Vedanta Hold Tata Steel Buy ICICI Securities Ltd Retail Equity Research Page 11

12 RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai research@icicidirect.com ICICI Securities Ltd Retail Equity Research Page 12

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