GULF OIL LUBRICANTS GST booster; market share gains on course

Transcription

1 VISIT NOTE GULF OIL LUBRICANTS GST booster; market share gains on course India Equity Research Lubricants We met the management of Gulf Oil Limited (GOLI) to understand the company s evolving strategy on bolstering its market share and implications of GST on the sector in general and the company in particular. With the GST rate for lubricants pegged at 18% (earlier ~28%), the lubricants sector will be a strong beneficiary of the decline in the tax rate. Also, the company expects to extend traction in volume (up 11% in FY17) and grow at 2-3x industry led by further OEM tie-ups, increasing share in PCMO driven by higher advertising, innovation and increasing distribution. We maintain BUY with TP of INR808. Lower GST rate to spur industry growth While Q1FY18 will be marginally impacted by destocking due to GST, overall the new rate is a positive for the sector. Under GST, the rate is pegged at 18% for the sector having declined from ~28% earlier, which would entail significant savings. In addition, GOLI stands to record additional savings of 2% CST that it was paying earlier on interstate sales. The company plans to pass on this benefit and expects 5-6% reduction in retail price. While margins may remain stable on passing benefits, industry volumes could see an improvement as prices correct. GOLI had undertaken 2-3% price increase in January with another increase in May, together a 7-8% jump in prices. Increasing OEM tie-ups; distribution driving PCMO Post volumes rising 11% in FY17, GOLI targets to ramp up volumes 2-3x industry growth riding increasing tie-ups with OEMs - Bajaj Auto and Mahindra & Mahindra (M&M) in past few years. Recently, the company launched 2 new OEM products for M&M, added new regions and started supplying transmission fluid fillings for its tractors. Besides, commissioning of its Chennai plant, which is in close proximity to OEM clusters, is an additional positive. On distribution front, retail base grew 15% in FY17 and GOLI now has close to 55,000 outlets. The company is focused on sprucing up its distribution network by having on board all the distributors, which will help it keep track of them. GOLI remains committed to grow at 2-3x the market. EDELWEISS RATINGS Absolute Rating Investment Characteristics MARKET DATA (R:, B: GOLI IN) BUY Growth CMP : INR 809 Target Price : INR week range (INR) : 900 / 551 Share in issue (mn) : 49.6 M cap (INR bn/usd mn) : 40 / 622 Avg. Daily Vol. BSE/NSE ( 000) : 29.7 SHARE HOLDING PATTERN (%) Current Q2FY17 Q1FY17 Promoters * MF's, FI's & BKs FII's Others * Promoters pledged shares (% of share in issue) PRICE PERFORMANCE (%) BSE Midcap Index Stock : NIL Stock over Index 1 month (0.2) 3 months months Outlook and valuations: Growth strong; maintain BUY We continue to build in 16% revenue CAGR, driven by 12% growth in volumes and expect ~270bps improvement in RoCE to 42.6% over FY We value the stock at 25x FY19E P/E, giving us a target price of INR808. Maintain BUY. Financials Revenues (INR mn) 10,114 11,311 13,164 15,080 EBITDA (INR mn) 1,592 1,804 2,028 2,335 Adjusted Profit (INR mn) 1,003 1,211 1,401 1,604 Adjusted Diluted EPS (INR) EPS growth (%) Diluted P/E (x) ROACE (%) ROAE (%) Edelweiss Research is also available on Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset. Shradha Sheth shradha.sheth@edelweissfin.com Nihal Mahesh Jham nihal.jham@edelweissfin.com July 11, 2017 Edelweiss Securities Limited

2 (# of outlets) (# of outlets) ('000 KL) Lubricants Industry-leading volume growth, ahead of peers Chart 1: GOLI has seen the highest growth in volumes among peers 300-1% -1% 7% 11% 4% 4% Castrol Shell Valvoline Gulf Oil Veedol Total FY09 FY17 Source: Company, Edelweiss research Note: Box represents CAGR over FY09-17 In past decade, GOLI witnessed strongest market share expansion versus peers. In FY17, while industry stagnated and other players struggled, GOLI turned in a strong performance as volumes grew ~11% versus 2-3% industry growth. Furthermore, in-line with management guidance is well poised to grow at 2-3x industry growth. Driving distribution & advertising to increase market share in PCMO Chart 2: Distribution reach has significantly ramped up in FY17 60,000 Retail reach 7,500 Distribution reach 48,000 6,000 36,000 24,000 4,500 3,000 12,000 1,500 0 FY16 FY17 0 Rural stockist Bike stops Car stops FY16 FY17 Source: Company, Edelweiss research GOLI has been looking at gaining market share in the PCMO segment by increasing its ad spends and distribution network. On distribution front, retail base clocked 15% growth and it now has around 55,000 outlets. The bike and car stops also registered a strong 50%/350% increase in FY17. The company is focused on getting in place its distribution system that has 2 Edelweiss Securities Limited

3 Gulf Oil Lubricants on board all its distributors, which helps it keep a track. The network is connected to its 850 plus car stops and 6,000 plus bike stops. GOLI has significantly ramped up its advertising, sales promotion and marketing spends (as a % of revenues) from 12.2% in FY15 to 14.2% in FY16. Fig. 1: Rising advertising initiatives Source: Company Recently, in addition to its tie-up with MS Dhoni, GOLI tied-up with an IPL team (Rising Pune Supergiants) to increase visibility. Fig. 2: OEM tie-ups Source: Company GOLI also launched 2 new OEM products for M&M along with the addition of new regions and transmission fluid fillings for tractors. Commissioning of the Chennai plant, which is in close proximity to OEM clusters, should also help. 3 Edelweiss Securities Limited

4 Lubricants Company Description Gulf Oil Lubricants (GOL) is part of Gulf Oil International Limited (GOIL), a leading global supplier in lubricants.the Gulf brand has been present in India since 1920s and is currently a part of the Hinduja Group since 1980 s. The Hinduja Group acquired Gulf from Chevron in the late 1980s and owns the rights to the brand for all countries worldwide, except Portugal, Spain and the US. The Indian lubricant business of the group is under the listed entity, Gulf Oil Lubricants (GOL). GOL was demerged from Gulf Oil Corporation as a separate entity in July 2014 to have a pure India lubricants play.in India, GOL is one of the top three players in the private sector with market share of ~4.5% in overall lubricants sector and ~7% share in bazaar segment. Investment Theme Gulf Oil (GOL) has prudently positioned itself between premium priced Castrol and low priced PSU offerings which has worked well. Gulf Oil (GOL) has evolved to be one of the top three private lubricant companies in the bazaar segment in India. Market share in the profitable automotive bazaar segment has grown from 4.4% in FY07 to 6.9% in FY14 with volume outperformance at 10.8% volume CAGR in past 6 years versus flat industry growth led by gaining share in 2W and price sensitive CVs. Next leg of growth will be led by PVs within personal mobility segment. Sharpening brands with FMCG-like ad spends at ~6-7% of sales, new OEM tie ups, distribution expansion will propel market share by 140bps (bazaar) and sustain volume growth at 2-3x industry. Collapse in base oil (key RM) prices, alongside structural improvement in sales mix towards personal mobility will drive operating margins up from 13.4% to 15.8% over FY Key Risks Delay in recovery in key segments With GOL s high exposure to automotive sales (85% of overall sales), any slowdown in theeconomy may impact its sales. With expected revival and capacity in place, we have estimated 10.3% CAGR in sales over FY Volatility in crude oil prices and exchange rate GOL s raw material cost forms 56% of sales with base oil and additives (crude oil derivatives) being the major ones (89% of raw material costs). Sharp volatility in crude oil prices and foreign exchange (~56% of raw materials are imported) could impact margins. However, GOL follows a prudent policy of hedging, owing to which the impact of forex is limited. Intensifying competition from private players, MNCs, oil PSUs MNCs and private players like Castrol, Shell, Exxon Mobil, TOTAL, Tide and oil PSUs like IOC, BPCL and HPCL offer stiff competition to GOL. Any reduction in lubricant prices by competition may force the company to reduce prices which may pose downside risk to our profitability estimates. Improvement in technology may impact volume growth Despite strong growth in the automobile industry over past decade, volume growth in the lubricant market was mere 4%. This was primarily due to advances in technology and investment by OEMs, resulting in steadily increasing drain intervals thus lengthening oil drain intervals from ~10,000km to ~80,000km. For trucks, the drain interval improved from 9,000km to 18,000km in 2002, then to 36,000km in 2006 and to 80,000km in This may impact structural demand in industry. 4 Edelweiss Securities Limited

5 Gulf Oil Lubricants Financial Statements Key Assumptions Macro GDP(Y-o-Y %) Inflation (Avg) Repo rate (exit rate) USD/INR (Avg) Sector Auto market (CV) Auto market (tractor) (10.0) Auto market (2W) volume growth Brent Crude (USD/bbl) Auto market(pv) Company Auto after market (2W) Auto after market (CV) Auto after market (Tractor) Realisation gr. assumptions (%) Overall realisation growth (6.1) Volume growth Overall volume growth Auto after market(pv) Auto OEM Industrial Overall bazaar market share (%) Auto after market (2W) Auto after market(pv) Auto after market (CV) Auto after market (Tractor) W aftermarket sales PV aftermarket sales CV aftermarket sales Tractor aftermarket sales Auto OEM sales Industrial sales Growth in Additives(%) Advertising Exp as % of net sales Gross profit per KL (INR '000) EBIDTA per KL (INR '000) Income statement (INR mn) Net revenue 10,114 11,311 13,164 15,080 Materials costs 5,509 5,943 7,122 8,239 Gross profit 4,605 5,367 6,042 6,841 Employee costs Other Expenses 1,743 2,091 2,352 2,634 Operating expenses 3,013 3,563 4,014 4,506 Total operating expenses 8,522 9,507 11,137 12,746 EBITDA 1,592 1,804 2,028 2,335 Depreciation EBIT 1,531 1,731 1,943 2,234 Add: Other income Less: Interest Expense Profit Before Tax 1,533 1,849 2,123 2,431 Less: Provision for Tax Reported Profit 1,003 1,211 1,401 1,604 Adjusted Profit 1,003 1,211 1,401 1,604 Shares o /s (mn) Adjusted Basic EPS Diluted shares o/s (mn) Adjusted Diluted EPS Adjusted Cash EPS Dividend per share (DPS) Dividend Payout Ratio(%) Common size metrics Operating expenses Gross margin Interest Expense EBITDA margins EBIT margins Net Profit margins Growth ratios (%) Revenues EBITDA PBT Adjusted Profit EPS Edelweiss Securities Limited

6 Lubricants Balance sheet (INR mn) As on 31st March FY16 FY17 FY18E FY19E Share capital Reserves & Surplus 2,386 3,437 4,315 5,396 Shareholders' funds 2,485 3,537 4,414 5,495 Minority Interest Long term borrowings 1,947 1,785 1, Total Borrowings 1,947 1,785 1, Long Term Liabilities Def. Tax Liability (net) Sources of funds 4,497 5,409 5,538 6,218 Gross Block 1,382 1,838 2,238 2,638 Net Block 999 1,382 1,697 1,997 Capital work in progress Intangible Assets Total Fixed Assets 1,088 1,472 1,787 2,086 Non current investments Cash and Equivalents 2,351 2,891 2,220 2,711 Inventories 1,569 1,499 2,091 2,062 Sundry Debtors 1,064 1,023 1,357 1,369 Loans & Advances Other Current Assets Current Assets (ex cash) 3,016 2,919 3,845 3,828 Trade payable 1,306 1,340 1,782 1,875 Other Current Liab Total Current Liab 1,989 1,904 2,346 2,438 Net Curr Assets-ex cash 1,026 1,015 1,499 1,389 Uses of funds 4,497 5,409 5,538 6,218 BVPS (INR) Free cash flow (INR mn) Reported Profit 1,003 1,211 1,401 1,604 Add: Depreciation Interest (Net of Tax) Others (299) 48 (284) (260) Less: Changes in WC (247) (11) 484 (110) Operating cash flow 1,132 1, ,580 Less: Capex Free Cash Flow ,180 Cash flow metrics Operating cash flow 1,132 1, ,580 Investing cash flow (178) (456) (401) (400) Financing cash flow (408) (412) (1,030) (688) Net cash Flow (672) 492 Capex (173) (456) (400) (400) Dividend paid (406) (465) (523) (523) Profitability and efficiency ratios ROAE (%) ROACE (%) ROA Inventory Days Debtors Days Payable Days Cash Conversion Cycle Current Ratio Gross Debt/EBITDA Gross Debt/Equity Adjusted Debt/Equity (0.2) (0.3) (0.3) (0.4) Interest Coverage Ratio LT debt /Cap empl. (%) Debt / Cap employed (%) Operating ratios Total Asset Turnover Fixed Asset Turnover Equity Turnover Valuation parameters Adj. Diluted EPS (INR) Y-o-Y growth (%) Adjusted Cash EPS (INR) Diluted P/E (x) P/B (x) EV / Sales (x) EV / EBITDA (x) Dividend Yield (%) Edelweiss Securities Limited

7 Gulf Oil Lubricants Additional Data Directors Data SANJAY G. HINDUJA Chairman RAMKRISHAN P. HINDUJA Vice-chairman M. S. RAMACHANDRAN Independent Director KANCHAN CHITALE Independent Director ASHOK KINI Independent Director RAVI CHAWLA Managing Director Auditors - Pricewaterhouse *as per last available data Holding Top10 Perc. Holding Perc. Holding Gulf oil intl maurit Morgan stanley 3.53 Wasatch advisors inc 3.05 Reliance capital tru 2.33 Templeton asset mgmt 1.89 Iam ltd 1.39 Birla sun life asset 1.38 Axis asset managemen 1 Mirae asset global i 0.79 Canara robeco asset 0.39 *as per last available data Bulk Deals Data Acquired / Seller B/S Qty Traded Price 30 Mar 2017 Gulf Oil International Mauritius Inc Buy Mar 2017 Iam Ltd Sell *as per last available data Insider Trades Reporting Data Acquired / Seller B/S Qty Traded 07 Apr 2017 GULF OIL INTERNATIONAL (MAURITIUS) INC Buy Apr 2017 GULF OIL INTERNATIONAL (MAURITIUS) INC Buy Apr 2017 GULF OIL INTERNATIONAL (MAURITIUS) INC Buy *as per last available data 7 Edelweiss Securities Limited

8 Jul-16 Aug-16 Aug-16 Sep-16 Oct-16 Oct-16 Nov-16 Dec-16 Jan-17 Jan-17 Feb-17 Mar-17 Mar-17 Apr-17 May-17 May-17 Jun-17 Jul-17 (INR) Lubricants Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai Board: (91-22) , Aditya Narain Head of Research ` Coverage group(s) of stocks by primary analyst(s): Lubricants Castrol India, Gulf Oil Lubricants Recent Research Date Company Title Price (INR) Recos 02-Jun May Feb-17 Castrol India Volumes stuck in slow lane; Result Update Gulf Oil Lubricants Volume growth back on track; Result Update Castrol India Volume growth remains muted; Result Update 418 Reduce 780 Buy 424 Reduce Distribution of Ratings / Market Cap Edelweiss Research Coverage Universe Rating Interpretation Buy Hold Reduce Total Rating Distribution* * 1stocks under review > 50bn Between 10bn and 50 bn < 10bn Market Cap (INR) Rating Buy Hold Reduce Expected to appreciate more than 15% over a 12-month period appreciate up to 15% over a 12-month period depreciate more than 5% over a 12-month period One year price chart Gulf Oil Lubricants 8 Edelweiss Securities Limited

9 Gulf Oil Lubricants DISCLAIMER Edelweiss Securities Limited ( ESL or Research Entity ) is regulated by the Securities and Exchange Board of India ( SEBI ) and is licensed to carry on the business of broking, depository services and related activities. The business of ESL and its Associates (list available on are organized around five broad business groups Credit including Housing and SME Finance, Commodities, Financial Markets, Asset Management and Life Insurance. This Report has been prepared by Edelweiss Securities Limited in the capacity of a Research Analyst having SEBI Registration No.INH and distributed as per SEBI (Research Analysts) Regulations This report does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. Securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 includes Financial Instruments and Currency Derivatives. The information contained herein is from publicly available data or other sources believed to be reliable. This report is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. The user assumes the entire risk of any use made of this information. Each recipient of this report should make such investigation as it deems necessary to arrive at an independent evaluation of an investment in Securities referred to in this document (including the merits and risks involved), and should consult his own advisors to determine the merits and risks of such investment. The investment discussed or views expressed may not be suitable for all investors. This information is strictly confidential and is being furnished to you solely for your information. This information should not be reproduced or redistributed or passed on directly or indirectly in any form to any other person or published, copied, in whole or in part, for any purpose. This report 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 ESL and associates / group companies to any registration or licensing requirements within such jurisdiction. The distribution of this report in certain jurisdictions may be restricted by law, and persons in whose possession this report comes, should observe, any such restrictions. The information given in this report is as of the date of this report and there can be no assurance that future results or events will be consistent with this information. This information is subject to change without any prior notice. ESL reserves the right to make modifications and alterations to this statement as may be required from time to time. ESL or any of its associates / group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. ESL is committed to providing independent and transparent recommendation to its clients. Neither ESL nor any of its associates, group companies, directors, employees, agents or representatives shall be liable for any damages whether direct, indirect, special or consequential including loss of revenue or lost profits that may arise from or in connection with the use of the information. Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein. Past performance is not necessarily a guide to future performance.the disclosures of interest statements incorporated in this report are provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. The information provided in these reports remains, unless otherwise stated, the copyright of ESL. All layout, design, original artwork, concepts and other Intellectual Properties, remains the property and copyright of ESL and may not be used in any form or for any purpose whatsoever by any party without the express written permission of the copyright holders. ESL shall not be liable for any delay or any other interruption which may occur in presenting the data due to any reason including network (Internet) reasons or snags in the system, break down of the system or any other equipment, server breakdown, maintenance shutdown, breakdown of communication services or inability of the ESL to present the data. In no event shall ESL be liable for any damages, including without limitation direct or indirect, special, incidental, or consequential damages, losses or expenses arising in connection with the data presented by the ESL through this report. We offer our research services to clients as well as our prospects. Though this report is disseminated to all the customers simultaneously, not all customers may receive this report at the same time. We will not treat recipients as customers by virtue of their receiving this report. ESL and its associates, officer, directors, and employees, research analyst (including relatives) worldwide may: (a) from time to time, have long or short positions in, and buy or sell the Securities, mentioned herein or (b) be engaged in any other transaction involving such Securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the subject company/company(ies) discussed herein or act as advisor or lender/borrower to such company(ies) or have other potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of publication of research report or at the time of public appearance. ESL may have proprietary long/short position in the above mentioned scrip(s) and therefore should be considered as interested. The views provided herein are general in nature and do not consider risk appetite or investment objective of any particular investor; readers are requested to take independent professional advice before investing. This should not be construed as invitation or solicitation to do business with ESL. 9 Edelweiss Securities Limited

10 Lubricants ESL or its associates may have received compensation from the subject company in the past 12 months. ESL or its associates may have managed or co-managed public offering of securities for the subject company in the past 12 months. ESL or its associates may have received compensation for investment banking or merchant banking or brokerage services from the subject company in the past 12 months. ESL or its associates may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months. ESL or its associates have not received any compensation or other benefits from the Subject Company or third party in connection with the research report. Research analyst or his/her relative or ESL s associates may have financial interest in the subject company. ESL and/or its Group Companies, their Directors, affiliates and/or employees may have interests/ positions, financial or otherwise in the Securities/Currencies and other investment products mentioned in this report. ESL, its associates, research analyst and his/her relative may have other potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of publication of research report or at the time of public appearance. Participants in foreign exchange transactions may incur risks arising from several factors, including the following: ( i) exchange rates can be volatile and are subject to large fluctuations; ( ii) the value of currencies may be affected by numerous market factors, including world and national economic, political and regulatory events, events in equity and debt markets and changes in interest rates; and (iii) currencies may be subject to devaluation or government imposed exchange controls which could affect the value of the currency. Investors in securities such as ADRs and Currency Derivatives, whose values are affected by the currency of an underlying security, effectively assume currency risk. Research analyst has served as an officer, director or employee of subject Company: No ESL has financial interest in the subject companies: No ESL s Associates may have actual / beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report. Research analyst or his/her relative has actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report: No ESL has actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report: No Subject company may have been client during twelve months preceding the date of distribution of the research report. There were no instances of non-compliance by ESL on any matter related to the capital markets, resulting in significant and material disciplinary action during the last three years except that ESL had submitted an offer of settlement with Securities and Exchange commission, USA (SEC) and the same has been accepted by SEC without admitting or denying the findings in relation to their charges of non registration as a broker dealer. A graph of daily closing prices of the securities is also available at Analyst Certification: The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report. Additional Disclaimers Disclaimer for U.S. Persons This research report is a product of Edelweiss Securities Limited, 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. This report is intended for distribution by Edelweiss Securities Limited only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor. 10 Edelweiss Securities Limited

11 Gulf Oil Lubricants In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, Edelweiss Securities Limited has entered into an agreement with a U.S. registered broker-dealer, Edelweiss Financial Services Inc. ("EFSI"). Transactions in securities discussed in this research report should be effected through Edelweiss Financial Services Inc. Disclaimer for U.K. Persons The contents of this research report have not been approved by an authorised person within the meaning of the Financial Services and Markets Act 2000 ("FSMA"). In the United Kingdom, this research report is being distributed only to and is directed only at (a) persons who have professional experience in matters relating to investments falling within Article 19(5) of the FSMA (Financial Promotion) Order 2005 (the Order ); (b) persons falling within Article 49(2)(a) to (d) of the Order (including high net worth companies and unincorporated associations); and (c) any other persons to whom it may otherwise lawfully be communicated (all such persons together being referred to as relevant persons ). This research report must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this research report relates is available only to relevant persons and will be engaged in only with relevant persons. Any person who is not a relevant person should not act or rely on this research report or any of its contents. This research report must not be distributed, published, reproduced or disclosed (in whole or in part) by recipients to any other person. Disclaimer for Canadian Persons This research report is a product of Edelweiss Securities Limited ("ESL"), which is the employer of the research analysts who have prepared the research report. The research analysts preparing the research report are resident outside the Canada and are not associated persons of any Canadian registered adviser and/or dealer and, therefore, the analysts are not subject to supervision by a Canadian registered adviser and/or dealer, and are not required to satisfy the regulatory licensing requirements of the Ontario Securities Commission, other Canadian provincial securities regulators, the Investment Industry Regulatory Organization of Canada and are not required to otherwise comply with Canadian rules or regulations regarding, among other things, the research analysts' business or relationship with a subject company or trading of securities by a research analyst. This report is intended for distribution by ESL only to "Permitted Clients" (as defined in National Instrument ("NI ")) who are resident in the Province of Ontario, Canada (an "Ontario Permitted Client"). If the recipient of this report is not an Ontario Permitted Client, as specified above, then the recipient should not act upon this report and should return the report to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any Canadian person. ESL is relying on an exemption from the adviser and/or dealer registration requirements under NI available to certain international advisers and/or dealers. Please be advised that (i) ESL is not registered in the Province of Ontario to trade in securities nor is it registered in the Province of Ontario to provide advice with respect to securities; (ii) ESL's head office or principal place of business is located in India; (iii) all or substantially all of ESL's assets may be situated outside of Canada; (iv) there may be difficulty enforcing legal rights against ESL because of the above; and (v) the name and address of the ESL's agent for service of process in the Province of Ontario is: Bamac Services Inc., 181 Bay Street, Suite 2100, Toronto, Ontario M5J 2T3 Canada. Disclaimer for Singapore Persons In Singapore, this report is being distributed by Edelweiss Investment Advisors Private Limited ("EIAPL") (Co. Reg. No H) which is a holder of a capital markets services license and an exempt financial adviser in Singapore and (ii) solely to persons who qualify as "institutional investors" or "accredited investors" as defined in section 4A(1) of the Securities and Futures Act, Chapter 289 of Singapore ("the SFA"). Pursuant to regulations 33, 34, 35 and 36 of the Financial Advisers Regulations ("FAR"), sections 25, 27 and 36 of the Financial Advisers Act, Chapter 110 of Singapore shall not apply to EIAPL when providing any financial advisory services to an accredited investor (as defined in regulation 36 of the FAR. Persons in Singapore should contact EIAPL in respect of any matter arising from, or in connection with this publication/communication. This report is not suitable for private investors. Copyright 2009 Edelweiss Research (Edelweiss Securities Ltd). All rights reserved Access the entire repository of Edelweiss Research on 11 Edelweiss Securities Limited