India Equities ,000. Jul-13. Jan-13. Jan-14

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1 India I Equities Country Daily 7 April 2014 India Morning Bell All the latest research and data India Healthcare - Growth momentum to be strong. 4QFY14 revenue growth of the pharmaceutical companies we cover is likely to have averaged 13.1% yoy. Excl. Wockardt (FDA issues) and Fortis (divestments), however, we expect it to be 20.1% yoy, largely driven by US generics, the expected recovery in domestic formulations and favourable currency movements. We expect Sun, Cipla, Lupin, Ipca and Cadila to have driven most of the revenue growth. We expect 4QFY14 revenue growth to have been strong, led by the US generics business and a revival in domestic formulations. We are Overweight on the sector. Top picks. Lupin, DRL, Torrent, Indoco and Natco. We have a Sell on Ranbaxy and Wockhardt. India Autos - Near-term demand weakness; ahead, tailwinds likely. Sector valuations normally suffer during periods of weak demand. However, the current valuations are at a significant premium to past averages and appear to ignore the weak underlying demand (except in Tata Motors, where domestic demand is not a factor). Maruti Suzuki and Ashok Leyland are quoting at significant premiums to fair valuations and we recommend a Sell. Tata Motors is our top pick on the sustained good performance at JLR, and we are positive on two-wheeler companies, Bajaj Auto and Hero MotoCorp. We also have a Buy rating on M&M. Among auto-components companies, we like Motherson Sumi, Wabco India and Suprajit Engineering. Chart of the day Global : Unemployment rate sustained below 7% (Unemployment rate, %) Jan-09 Source: Bloomberg Jul-09 Jan-10 Jul-10 Jan-11 Non-farm payroll (RHS) Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Unemployment rate Jan ,000 (Unit., '000) Sensex: Nifty: 6694 Markets 4 Apr 14 1 Day YTD Sensex % 5.6% Nifty % 6.2% Dow Jones % -1.0% S & P % 0.9% FTSE % -0.8% Nikkei* % -8.7% Hang Seng* % -3.9% Volumes (US$m) 4 Apr 14 1 Day Avg '14 Cash BSE % 388 Cash NSE 2, % 1,874 Derivatives (NSE) 20, % 24,198 Flows (US$m) 4 Apr 14* MTD YTD FII Cash Buy ,851 Sell ,550 Net ,901 FII - Derivatives Buy 2,692 22, ,807 Sell 2,847 21, ,713 Net ,093 DII Cash Buy ,820 Sell ,061 Net ,241 Others 4 Apr 14 1 Day YTD Oil Brent (US$/bbl)* % -3.6% Gold (US$/oz)* 1, % 8.1% Steel (US$/MT) % 1.7% `/US$ % 2.9% US$/Euro* % 0.3% Yen/US$* % 2.0% Call Rate 8.10% 110.bps -65.bps 10-year G-Secs 9.07% 6.2bps 24.2bps EMBI spreads bps *Provisional Source: BSE, Bloomberg Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

2 7 April 2014 India Morning Bell Market Data Large Caps (>US$1bn) Mid Caps (US$250m-1bn) Small Caps (US$100m-250m) Price Performance Price Performance Price Performance Top-5 gainers Top-5 gainers Top-5 gainers Company CMP (INR) 1 wk (%) 1 Mth (%) Company CMP (INR) 1 wk (%) 1 Mth (%) Company CMP (INR) 1 wk (%) 1 Mth (%) WOCKHARDT LTD UNITECH LTD UNNO INDUS LTD (7.7) ADANI POWER LTD RAJESH EXPORTS NIRLON LTD RANBAXY LABS LTD SKS MICROFINANCE SPICEJET LTD UNION BANK INDIA INDIA CEMENTS ALOK INDUSTRIES SHRIRAM CITY UNI JET AIRWAYS IND JINDAL DRILLING Top-5 losers Top-5 losers Top-5 losers Company CMP (INR) 1 wk (%) 1 Mth (%) Company CMP (INR) 1 wk (%) 1 Mth (%) Company CMP (INR) 1 wk (%) 1 Mth (%) L&T FINANCE HOLD 70 (5.8) (9.3) NATCO PHARMA LTD 714 (9.5) (16.8) JAYBHARAT TEXTIL 24 (17.8) (17.8) BHARAT HEAVY ELE 187 (5.3) 15.2 ESS DEE ALUMINIU 649 (6.1) (11.7) YBRANT DIGITAL L 15 (9.8) 8.9 INFO EDGE 601 (5.0) (2.3) HT MEDIA LTD 87 (5.4) 14.6 KEWAL KIRAN CLOT 1103 (6.9) 5.8 BHARTI INFRATEL 199 (5.0) 6.1 EIH LTD 70 (4.9) 10.5 CLARIS LIFESC 161 (6.5) (8.7) PAGE INDUSTRIES 6118 (4.9) (0.7) WESTLIFE DEVELOP 344 (4.9) (5.8) TECHNO ELE & ENG 110 (6.0) (5.7) Volume Volume Volume Volume spurts Volume spurts Volume spurts Company CMP (INR) 1 wk avg 1/4 wk (%) Company CMP (INR) 1 wk avg 1/4 wk (%) Company CMP (INR) 1 wk avg 1/4 wk (%) GILLETTE INDIA 1,931 36, REPCO HOME FINAN 359 1,439, JAYBHARAT TEXTIL CASTROL INDIA , AIA ENGINEERING , USHDEV INTL LTD , WOCKHARDT LTD 600 3,885, WESTLIFE DEVELOP , JINDAL DRILLING , ADANI POWER LTD 52 14,912, NATCO PHARMA LTD , NIRLON LTD , RANBAXY LABS LTD 425 6,387, HATHWAY CABLE , SUNDARAM CLAYTON , Technicals Technicals Technicals Above 200 DMA Above 200 DMA Above 200 DMA Company CMP (INR) 200D Avg (%) Company CMP (INR) 200D Avg (%) Company CMP (INR) 200D Avg (%) APOLLO TYRES LTD PRITI MERCANTILE ESTEEM BIO PROC AUROBINDO PHARMA # PARAG SHILPA INV MAA JAGDAMBE TRA ADANI ENTERPRISE # AMTEK AUTO LTD GLOBUS CONSTRUCT ALSTOM T&D INDIA # BF UTILITIES LTD HPC BIOSCIENCES MOTHERSON SUMI SYMPHONY LTD GLOBAL OFFSHORE Below 200 DMA Below 200 DMA Below 200 DMA Company CMP (INR) 200D Avg (%) Company CMP (INR) 200D Avg (%) Company CMP (INR) 200D Avg (%) IDEA CELLULAR (11.0) STRIDES ARCOLAB (37.1) INDIAN INFOTECH 6 29 (78.6) NTPC LTD (9.9) PIPAVAV DEFENCE (23.8) INDIA TOURISM (73.0) JUBILANT FOODWOR 1,034 1,140 (9.2) ESSAR PORTS LTD (13.7) GLOBAL INFRATECH (48.3) VEDANTA RESOURCE (9.0) ZYDUS WELLNESS (10.6) UNNO INDUS LTD (42.1) M&M FIN SERVICES (8.8) JET AIRWAYS IND (10.1) LUMINAIRE TECH (40.9) Source: Bloomberg Anand Rathi Research India Equities

3 India I Equities Healthcare Result Preview 7 April 2014 India Healthcare Growth momentum to be strong Overweight Sensex: Nifty: 6694 Key takeaways Revenue growth strong. 4QFY14 revenue growth of the pharmaceutical companies we cover is likely to have averaged 13.1% yoy. Excl. Wockardt (FDA issues) and Fortis (divestments), however, we expect it to be 20.1% yoy, largely driven by US generics, the expected recovery in domestic formulations and favourable currency movements. We expect Sun, Cipla, Lupin, Ipca and Cadila to have driven most of the revenue growth. Domestic business could surprise positively. Considering data from the All-Indian-Origin Chemists & Distributors, the domestic pharma sector grew in single digits through Jan-Mar 14 (vs mid-teens in the past few years). However, we expect actual growth for companies we cover to come at double digits (~12%) considering that most have settled with stockists and retailers about trade-related issues, and have raised prices of products which were taken out of the old drug-price-control list. We expect strong growth in Sun, Cipla, Glenmark, Lupin and Ipca s domestic formulations businesses. Better margins and profits. We expect the EBITDA margin to have improved 70bps yoy, to 23.2%, led by greater US generics growth and a recovery in domestic formulations businesses, which could have improved gross margins. Better margins, along with lower interest costs, could result in a robust 21% yoy adjusted PAT growth (excl. Wockhardt and Fortis). Sun, Cipla, Ipca and Natco would register higher net profit growth. Our take. We expect 4QFY14 revenue growth to have been strong, led by the US generics business and a revival in domestic formulations. We are Overweight on the sector. Top picks. Lupin, DRL, Torrent, Indoco and Natco. We have a Sell (recommendation) on Ranbaxy and Wockhardt. Healthcare sector: 4QFY14 estimates Company Revenue (`m) YoY chg (%) QoQ chg (%) Adj PAT (`m) YoY chg (%) QoQ chg (%) Apollo Hospitals 10, Cadila 19, , (9.2) Cipla 25, (2.9) 3, Dr Reddy's Labs 36, , Fortis Healthcare 9,156 (43.1) (10.1) 30 NA NA Glenmark 16, , (12.6) Indoco 1, Ipca 8, (0.0) 1, (12.5) Lupin 30, ,653 (0.2) (2.3) Natco 1, (3.5) (12.8) Pfizer 2, (22.8) (13.3) Ranbaxy* 28, (1.9) 1, Sun Pharma 41, (2.7) 13, (11.5) Torrent pharma 9, (3.3) 1, (18.9) Unichem 2, (0.6) Wockhardt 12,091 (18.6) (2.2) 1,573 (57.6) (7.9) Note: *Ranbaxy data for 1QCY14e Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

4 7 April 2014 India Healthcare Growth momentum to be strong Fig 1 4QFY14: Key estimates Revenue (`m) EBITDA Margin (%) Adjusted PAT (`m) Company 4QFY14e YoY Chg (%) 4QFY14e YoY Chg (bps) 4QFY14e YoY Chg (%) Sun Pharmaceutical Industries 40, (121) 13, Dr Reddy's Laboratories 34, , Cipla 24, , Lupin 27, , Ranbaxy Laboratories* 30, , Cadila Healthcare 17, , Glenmark Pharmaceuticals 15, (265) 1,783 (16.3) Torrent Pharma 9, (276) 1, Wockhardt 10,188 (29.0) 15.5 (2,246) 986 (77.5) Apollo Hospitals 9, (36) Ipca Laboratories 8, , Fortis Healthcare India 10,152 (34.0) 7.0 (292) (180) NA Pfizer 2, Unichem Laboratories 2, Natco Pharma 1, (247) 237 (15.4) Indoco Remedies 1, Note: *Ranbaxy data for 1QCY14e Fig 2 Valuation summary Market cap PE EV/EBITDA P/BV RoE RoCE Net Gearing (%) Company Rating CMP (`) Target (`) (US$ m) FY15 (x) FY15 (x) FY15 (x) FY15e FY15e FY15e Sun Pharma Buy , (48.4) DRL Buy ,975 7, Cipla Hold , Lupin Buy 983 1,072 7, (12.8) Ranbaxy Sell , Cadila Buy ,091 3, Wockhardt Sell , Glenmark Buy , Torrent Pharma Buy , Apollo Hosp Hold 905 1,026 2, Ipca Labs Buy , Fortis Hold Pfizer Hold , (60.8) Unichem Buy (17.6) Natco Buy Indoco Buy Note: *Ranbaxy data for CY14e Anand Rathi Research 2

5 India I Equities Healthcare Result Preview 7 April 2014 Sun Pharmaceutical Industries Strong growth continues; Buy Key takeaways Strong quarter. We expect Sun Pharma to register healthy, 36.6% yoy, revenue growth, led by strong growth in its US generics, domestic formulations and emerging markets. We expect the EBITDA margin to improve 350bps yoy, to 44.5%, from higher growth in domestic formulations and US generics. Strong revenue growth and better margins would aid the 33.9% yoy rise in adjusted PAT. However, we expect the EBITDA margin in the Taro business to fall, considering the keener competition in some products. We estimate a 420bps yoy increase in the 4QFY14 tax rate. US generics, key growth driver. We expect US generics to be the key growth driver, with a 45% yoy rise in revenue, led by product launches, low continuing competition in Doxil and Doxycycline, Taro s strong performance and the integration of DUSA Pharma and URL generics. We expect the India formulations business revenue to grow 18% yoy, as we do not expect much of an impact from the new pricing policy and believe that trade issues with stockists are over now. ROW formulations would also continue on a strong trajectory, with a 29.8% yoy increase in revenue. High probability of acquisitions. Considering the net cash balance of over US$1bn and the rising base, we believe that Sun would be seeking an acquisition from a strategic-fit perspective. This would help it maintain the high growth momentum and better return ratios. Our take. We are positive on the business model and growth outlook. Taro s continuing ` strong performance, further acquisitions and profitability expansion in URL Pharma could offer some upside to our estimates. We estimate 21.5% revenue and 22.2% adjusted PAT CAGRs over FY13-16, with the EBITDA margin decliniong 180bps. We maintain a Buy on the stock, with a price target of `700 based on 24x Sep 15e earnings. Risks. Currency fluctuations, regulatory hurdles and price erosion in Taro s product range. Quarterly results (YE Mar) 4QFY13 4QFY14e % yoy FY13 FY14e % yoy Sales (`m) 30,715 41, , , EBITDA (`m) 12,599 18, ,673 72, EBITDA margin (%) bps bps Interest (`m) (43.2) Depreciation (`m) 887 1, ,362 4, Other income (`m) 1, NA 3,117 3, PBT (`m) 12,814 18, ,149 47, Tax (`m) 1,773 3, ,206 7,090 (13.6) Tax rate (%) bps bps PAT (`m) 10,116 13, ,807 54, Rating: Buy Target Price: `700 Share Price: `572 Key data SUNP IN / SUN.BO 52-week high / low `653/ `423 Sensex / Nifty / m average volume US$14.6m Market cap `1,184bn / US$19bn Shares outstanding 2,071m Shareholding pattern (%) Dec'13 Sep'13 Jun'13 Promoters of which, Pledged Free Float Foreign Institutions Domestic Institutions Public Financials (YE Mar) FY14e FY14e Sales (`m) 161, ,868 Net profit (`m) 54,464 57,211 EPS (`) Growth (%) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%) (37.8) (48.4) Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

6 7 April 2014 Sun Pharmaceutical Industries Strong growth continues; Buy Quick Glance Financials and Valuations Fig 1 Income statement (`m) Net revenues 80, , , , ,822 Revenue growth (%) Op. expenses 48,152 63,326 88, , ,341 EBIDTA 32,043 49,673 72,957 77,876 85,481 EBITDA margin (%) Interest expenses Depreciation 2,912 3,362 4,014 4,453 4,892 + Other income 4,715 3,117 3,941 4,700 5,070 - Tax 3,826 8,206 7,090 13,982 15,339 Effective tax rate (%) Reported PAT 25,873 30,081 33,066 57,211 63,563 +/- Extraordinary items 0 (5,836) -25, /- Minority interest 3,855 4,863 7,110 6,485 6,314 Adjusted PAT 25,873 34,807 54,464 57,211 63,563 Adj. FDEPS (`/share) Adj. FDEPS growth (%) Fig 2 Balance sheet (`m) Share capital 1,036 1,036 2,071 2,071 2,071 Reserves & surplus 120, , , , ,217 Net worth 121, , , , ,289 Minority interest 11,614 16,351 23,461 29,947 36,261 Total debt 2,650 1,982 1,982 1,982 1,982 Def. tax liab. (net) (5,199) (7,112) (7,112) (7,112) (7,112) Capital employed 130, , , , ,419 Net fixed assets 42,960 62,101 66,087 69,634 72,742 Investments 22,129 24,116 24,116 24,116 24,116 - of which, Liquid 16,239 13,052 13,052 13,052 13,052 Net working capital 31,968 25,864 42,916 50,833 59,031 Cash and bank balance 33,672 40,587 51,988 90, ,530 Capital deployed 130, , , , ,419 Net debt (47,261) (51,657) (63,058) (101,903) (145,600) WC days Book value (`/sh) Fig 3 Cash-flow statement (`m) PAT 29,738 34,943 40,176 63,697 69,877 + Non-cash items 2,076 3,362 4,014 4,453 4,892 Cash profit 31,815 38,305 44,191 68,150 74,768 - Incr./(decr.) in WC 8,297 (6,104) 17,052 7,917 8,198 Operating cash-flow 23,517 44,409 27,139 60,232 66,571 - Capex 7,877 15,800 8,000 8,000 8,000 Free cash-flow 15,640 28,609 19,139 52,232 58,571 - Dividend 5,115 7,039 7,737 13,387 14,874 + Equity raised 0 + Debt raised (1,001) (668) Investments (169) 1, Misc. items (1,932) 12, Net cash-flow 11,625 6,916 11,401 38,845 43,697 + Op. cash & bank bal. 22,046 33,672 40,587 51,988 90,833 Cl. cash & bank bal. 33,672 40,587 51,988 90, ,530 Fig 4 Ratio `572 P/E (x) P/B (x) EV/EBITDA (x) RoE (%) RoCE (%) Dividend yield (%) Dividend payout (%) Asset turnover (x) Net Debt/Equity (x) (0.4) (0.4) (0.4) (0.5) (0.6) Net debt/ebitda (x) (1.5) (1.0) (0.9) (1.3) (1.7) Net debt/op. CF (x) (2.0) (1.2) (2.3) (1.7) (2.2) Interest coverage (x) P/CEPS (x) EV/ sales (x) M-cap/sales (x) Fig 5 Valuation chart (PE band) Fig 6 Revenue break-up (FY14e) x 20x ROW 13% APIs 5% India 23% x x Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 US 59% Source: Bloomberg, Anand Rathi Research Anand Rathi Research 4

7 India I Equities Healthcare Result Preview 7 April 2014 Dr Reddy s Laboratories US to drive growth; Buy Key takeaways Strong quarter. We expect Dr Reddy s Laboratories 4QFY14 revenue to grow 10.3% yoy, led by strong growth in its US generics and Russian and CIS businesses. We expect its EBITDA margin to improve 324bps yoy, to 24.8%, mainly on strong growth in revenue from US generics and Russia and the CIS and favourable currency movements. We expect adjusted PAT to grow just 3.8% yoy, slower than revenue, due to lower other income and higher depreciation charges. US, Russia key growth drivers. We estimate US revenue to grow 35% yoy to US$273m, representing huge, 48.7% yoy, growth in rupee terms. This would have been driven by the recent launches of Dacogen, Vidaza, Depakote ER and Accutane. We estimate subdued, 9.8% yoy, growth in its domestic generics due to the impact of the new drug-pricing policy and the slowdown in the sector. Russia and the CIS are expected to continue a strong growth momentum, with a 27% yoy increase in revenue. The PSAI segment is expected to decline 41% yoy due to the high base. Product launches encouraging. We expect the growth momentum to continue in the near- to mid-term, led by product launches and market-share gain in key products in the US such as Toprol XL, Azacitidine, Zometa, Accutane, Reclast, Dacogen, Vidaza, Depakote ER, etc. We believe that more revenue from these products and market-share gains in key products, along with a favourable currency scenario, would lead to better profitability. Our ` take. We expect 10.3% yoy revenue growth, led by strong growth in its US, Russia and India generics. Its adjusted PAT would increase just 3.8% yoy, due to lower other income and higher depreciation charges. We are positive on the near- to mid-term growth outlook, considering its niche product launches in the US market. The stock trades at 18.7x FY15e and 16.9x FY16e earnings. We maintain a Buy, with a price target of `2,975 based on 20x Sep 15e earnings. Risks. Currency fluctuations, regulatory hurdles. Rating: Buy Target Price: `2,975 Share Price: `2,643 Key data DRRD IN / REDY.BO 52-week high / low `2940 / `1835 Sensex / Nifty / m average volume US$13.5m Market cap `449bn / US 7.24bn Shares outstanding 169.8m Shareholding pattern (%) Dec'13 Sep'13 Jun'13 Promoters of which, Pledged Free Float Foreign Institutions Domestic Institutions Public Financials (YE Mar) FY14e FY15e Sales (`m) 134, ,396 Net profit (`m) 21,842 24,048 EPS (`) Growth (%) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%) Quarterly results (YE Mar) 4QFY13 4QFY14e % yoy FY13 FY14e % yoy Sales (`m) 33,400 36, , , EBITDA (`m) 7,185 9, ,763 32, EBITDA margin (%) bps bps Interest (`m) (397) 87 (122.0) Depreciation (`m) 1,495 1, ,549 6, Other income(`m) 1, (68.3) 1,471 1, PBT (`m) 7,852 7,798 (0.7) 21,677 27, Tax (`m) 2,141 1,872 (12.6) 4,900 5, Tax rate (%) bps bps PAT (`m) 5,711 5, ,365 21, Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

8 7 April 2014 Dr Reddy s Laboratories US to drive growth; Buy Quick Glance Financials and Valuations Fig 1 Income statement (`m) Net revenues 96, , , , ,590 Revenue growth (%) Op. expenses 72,996 91, , , ,653 EBIDTA 23,741 24,763 32,090 34,396 36,938 EBITDA margin (%) Interest expenses Depreciation 5,214 5,549 6,811 6,901 6,979 + Other income 1,669 1,931 2,531 2,820 3,155 - Tax 4,204 4,900 5,461 6,012 6,622 Effective tax rate (%) Reported PAT 14,262 16,777 21,842 24,048 26,486 +/- Extraordinary items (1,040) /- Minority interest Adjusted PAT 15,065 16,365 21,842 24,048 26,486 Adj. FDEPS (`/share) Adj. FDEPS growth (%) Fig 2 Balance sheet (`m) Share capital Reserves & surplus 56,596 72,256 90, , ,774 Net worth 57,444 73,105 91, , ,623 Minority interest Total debt 32,210 36,678 24,678 14,678 4,678 Def. tax liab. (net) 1,132 1,983 1,983 1,983 1,983 Capital employed 90, , , , ,283 Net fixed assets 46,775 51,836 52,525 53,124 53,646 Investments 10,773 16,963 16,963 16,963 16,963 - of which, Liquid Net working capital 25,859 37,831 39,393 43,089 46,199 Cash and bank balance 7,379 5,136 8,847 14,326 22,476 Capital deployed 90, , , , ,283 Net debt 24,831 31,542 15, (17,798) WC days Book value (`/sh) Fig 3 Cash-flow statement (`m) PAT 14,262 16,777 21,842 24,048 26,486 + Non-cash items 6,254 6,237 6,811 6,901 6,979 Cash profit 20,516 23,014 28,653 30,948 33,465 - Incr./(decr.) in WC 4,909 9,972 1,561 3,697 3,110 Operating cash-flow 15,607 13,042 27,092 27,251 30,355 - Capex 8,141 11,298 7,500 7,500 7,500 Free cash-flow 7,466 1,744 19,592 19,751 22,855 - Dividend 2,709 2,981 3,881 4,272 4,706 + Equity raised Debt raised 8,707 4,468 (12,000) (10,000) (10,000) - Investments 10,795 6, Misc. items 1,019 (820) Net cash-flow 1,650 (2,243) 3,711 5,479 8,150 + Op. cash & bank bal. 5,729 7,379 5,136 8,847 14,326 Cl. cash & bank bal. 7,379 5,136 8,847 14,326 22,476 Fig 4 Ratio `2,643 P/E (x) P/B (x) EV/EBITDA (x) RoE (%) RoCE (%) Dividend yield (%) Dividend payout (%) Asset turnover (x) Net Debt/Equity (x) (0.1) Net debt/ebitda (x) (0.5) Net debt/op. CF (x) (0.6) Interest coverage (x) 26.9 NA P/CEPS (x) EV/ sales (x) M-cap/sales (x) Fig 5 PE band Fig 6 Revenue break-up (FY14e) 3,500 3,000 2,500 2,000 DRL 24x 20x 16x PSAI 23% Propritary products & Others 2% 1,500 12x 1, Global Generics 75% May-07 Oct-07 Mar-08 Aug-08 Jan-09 Jun-09 Nov-09 Apr-10 Sep-10 Feb-11 Jul-11 Dec-11 May-12 Oct-12 Mar-13 Aug-13 Jan-14 Source: Bloomberg, Anand Rathi Research Anand Rathi Research 6

9 India I Equities Healthcare Result Preview 7 April 2014 Cipla Margin pressure to continue in the near term; Hold Key takeaways Revenue growth strong. We expect strong, 27.5% yoy, revenue growth, largely driven by the surge in export formulations and APIs. The EBITDA margin is expected to decline slightly, by 32bps yoy, to 20.5%, due to higher staff costs on account of a restructuring in international operations. We expect adjusted PAT to grow 14.9% yoy, lower than revenue, due to the rise in interest and depreciation charges (mainly due to the Cipla Medpro consolidation) along with lower other income. Export formulations key growth driver. Formulations for exports are expected to grow 40% yoy, led by integration of Cipla Medpro, higher capacity utilization at its Indore SEZ and favourable currency movements. However, we expect steady, 8.6% yoy, growth in its domestic business, mainly due to the impact of the new drug-pricing policy and the general slowdown in domestic pharma sector growth. API revenues are expected to rise 59% yoy on the low 4QFY13 base. Margin pressure in near term, long-term outlook intact. The company could face near-term headwinds on the implementation of the new drugpricing policy and higher R&D spend along with building a front-end presence in the US market, which would hit margins. We expect CAGR over FY13-16 of 17% in revenue and 10% in adjusted PAT. The ramp-up of revenue from Dymista (US) and the launch of combination inhalers in the EU would be key growth triggers, and could provide the upside to our estimates. Our ` take. We expect 27.5% yoy revenue growth and 14.9% yoy adjusted PAT growth, largely driven by strong growth in export formulations. This would be driven by strong revenue growth with higher interest costs. The stock trades at 19x FY15e and 17x FY16e earnings. We maintain a Hold, with a price target of `436 based on 20x Sep 15e earnings. Risks. Currency fluctuations, regulatory hurdles. Quarterly results (YE Mar) 4QFY13 4QFY14e % yoy FY13 FY14e % yoy Sales (`m) 19,667 25, , , EBITDA (`m) 4,095 5, ,141 22, EBITDA margin (%) bps bps Interest (`m) Depreciation (`m) Other income (`m) PBT (`m) 3,720 4, ,954 19,503 (6.9) Tax (`m) (1.9) (1.9) Tax rate (%) bps bps Adj PAT (`m) 2,676 3, ,542 14, Rating: Hold Target Price: `436 Share Price: `404 Key data CIPLA IN / CIPL.BO 52-week high / low `450 / `353 Sensex / Nifty / m average volume US$13.8m Market cap `325bn / US$5. 4bn Shares outstanding 803m Shareholding pattern (%) Dec 13 Sep 13 Jun 13 Promoters of which, Pledged Free Float Foreign Institutions Domestic Institutions Public Financials (YE Mar) FY14e FY15e Sales (`m) 102, ,835 Net profit (`m) 14,627 15,644 EPS (`) Growth (%) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%) Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

10 7 April 2014 Cipla Margin pressure to continue in the near term; Hold Quick Glance Financials and Valuations Fig 1 Income statement (`m) Net revenues 70,207 82, , , ,318 Revenue growth (%) Op. expenses 53,250 60,652 80,015 91, ,068 EBIDTA 16,957 22,141 22,457 23,849 28,250 EBITDA margin (%) Interest expenses ,584 1, Depreciation 3,122 3,305 3,603 3,696 3,725 + Other income 353 1,160 2,233 1,765 2,099 - Tax 3,065 5,443 4,876 5,215 6,457 Effective tax rate (%) Reported PAT 11,442 15,449 14,627 15,644 19,371 +/- Extraordinary items /- Minority interest (29) Adjusted PAT 10,911 14,542 14,627 15,644 19,371 Adj. FDEPS (`/share) Adj. FDEPS growth (%) Fig 2 Balance sheet (`m) Share capital 1,606 1,606 1,606 1,606 1,606 Reserves & surplus 74,784 88, , , ,000 Net worth 76,389 90, , , ,606 Minority interest Total debt 135 9,669 26,369 16,369 11,369 Def. tax liab. (net) 2,332 2,805 2,805 2,805 2,805 Capital employed 78, , , , ,781 Net fixed assets 35,867 39,878 66,872 67,264 67,620 Investments 12,745 25,376 25,376 25,376 25,376 - of which, Liquid 9,405 21,168 21,168 21,168 21,168 Net working capital 29,340 35,978 40,527 45,883 51,426 Cash and bank bal 905 1, ,360 Capital deployed 78, , , , ,781 Net debt (10,175) (12,928) 5,048 (4,834) (17,158) WC days Book value (`/sh) Fig 3 Cash-flow statement (`m) PAT 11,442 15,449 14,627 15,644 19,371 + Non-cash items 3,323 3,778 3,603 3,696 3,725 Cash profit 14,766 19,226 18,230 19,340 23,096 - Incr./(decr.) in WC (4,458) 6,638 5,937 5,711 6,141 Operating cash-flow 19,224 12,588 12,293 13,629 16,954 - Capex 5,194 7,316 29,307 4,000 4,000 Free cash-flow 14,030 5,272 (17,014) 9,629 12,954 - Dividend 1,866 1,866 2,550 2,727 3,377 + Equity raised Debt raised (5,584) 9,535 20,500 (10,000) (5,000) - Investments 6,841 12,631 0 (2,500) 0 - Misc. items (156) (215) 1,193 Net cash-flow (105) 525 (257) (598) 4,577 + Op. cash & bank bal. 1, ,430 1, Cl. cash & bank bal ,430 1, ,152 Fig 4 Ratio `404 P/E (x) P/B (x) EV/EBITDA (x) RoE (%) RoCE (%) Dividend yield (%) Dividend payout (%) Asset turnover (x) Net Debt/Equity (x) (0.1) (0.1) (0.1) Net debt/ebitda (x) (0.6) (0.6) (0.3) Net debt/op. CF (x) (0.5) (1.0) (0.5) Interest coverage (x) P/CEPS (x) EV/ sales (x) M-cap/sales (x) Fig 5 PE band Fig 6 Revenue break-up (FY14e) Cipla 24x 20x 16x 12x Exports 55% Other operating income 3% Domestic formulations 42% 50 0 Apr-07 Sep-07 Feb-08 Jul-08 Dec-08 May-09 Oct-09 Mar-10 Aug-10 Feb-11 Jul-11 Dec-11 May-12 Oct-12 Mar-13 Aug-13 Jan-14 Source: Bloomberg, Anand Rathi Research Anand Rathi Research 8

11 India I Equities Healthcare Result Preview 7 April 2014 Lupin Strong growth to continue; Buy Key takeaways Strong quarter. Even on the high base, we expect Lupin to report strong, 20% yoy, revenue growth in 4QFY14, driven by US generics, Japan and domestic formulations. The EBITDA margin is expected to decline by a slight 40bps yoy, to 25.1%, due to the high base and lower other operating income. We expect adjusted PAT to grow just 8.9% yoy, due to a higher effective tax rate of 30% (vs 20.7% a year ago. On the PBT level, we expect a 23.4% yoy increase, driven by strong growth in revenue and higher nonoperating income. We have not factored in any MTM loss or gain on account of currency fluctuations. US generics, the key growth driver. We expect the strong revenue growth to be chiefly driven by a 22% yoy rise in its US generics business to US$200m because of product launches (incl. oral contraceptives). Its domestic formulations business is expected to grow 15% yoy, more than the single-digit industry growth. We expect revenue from emerging markets to grow 10% yoy on the high base of 4QFY13. Japan would report 29% yoy growth, mainly due to the very low base. Acquires Laboratories Grin in Mexico. Lupin recently acquired a 100% stake in the Mexico-based Laboratories Grin. This would enable its entry into teh high-growth Mexican and Latin American markets. This company had US$28m revenue in CY13 and develops, manufactures and commercialises brand-named ophthalmic products. Laboratories Grin is a leading ophthalmic manuifacturer ` and would enable Lupin to leverage its commercial presence to enter other therapy areas. Out take. We ar positive on the business model and growth outlook of Lupin. We expect 16% revenue and 21% adjusted net profit CAGRs over FY The stock trades at valuations of 21.7x FY15e and 18.6x FY16e earnings. We maintain a Buy on it, with a price target of `1,072, based on 22x Sep 15e earnings. Risks. Currency fluctuations, generic launch of Suprax. Rating: Buy Target Price: `1,072 Share Price: `976 Key data LPC IN / LUPN.BO 52-week high / low `1003/ `606 Sensex / Nifty / m average volume US$9.9m Market cap `437bn / US$7bn Shares outstanding 447.7m Shareholding pattern (%) Dec 13 Sep 13 Jun 13 Promoters of which, Pledged Free Float Foreign Institutions Domestic Institutions Public Financials (YE Mar) FY14e FY15e Sales (`m) 113, ,376 Net profit (`m) 17,553 20,146 EPS (`) Growth (%) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%) (1.8) (12.8) Quarterly results (YE Mar) 4QFY13 4QFY14e % yoy FY13 FY14e % yoy Sales (`m) 25,858 30, , , EBITDA (`m) 6,587 7, ,088 28, EBITDA margin (%) bps bps Interest (`m) (48.3) (48.0) Depreciation (`m) ,586 2,537 (1.9) Other income(`m) ,381 7,834.5 PBT (`m) 5,226 7, ,246 26, Tax (`m) 1,080 2, ,806 8, Tax rate (%) bps bps PAT (`m) 4,664 4,653 (0.2) 13,767 17, Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

12 7 April 2014 Lupin Strong growth to continue; Buy Quick Glance Financials and Valuations Fig 1 Income statement (`m) Net revenues 70,650 96, , , ,463 Revenue growth (%) Op. expenses 55,981 73,325 85,098 97, ,407 EBIDTA 14,669 23,088 28,020 31,938 36,056 EBITDA margin (%) Interest expenses Depreciation 2,275 2,586 2,537 2,765 2,972 + Other income , ,221 - Tax 3,086 5,818 8,795 9,207 10,227 Effective tax rate (%) Reported PAT 8,676 13,165 17,553 20,146 23,464 +/- Extraordinary items (223) (863) /- Minority interest Adjusted PAT 8,899 13,767 17,553 20,146 23,464 Adj. FDEPS (`/share) Adj. FDEPS growth (%) Fig 2 Balance sheet (`m) Share capital Reserves & surplus 39,236 51,147 65,004 80,907 99,430 Net worth 40,129 52,042 65,899 81, ,325 Minority interest ,244 1,644 Total debt 14,809 9,739 4,158 4,158 4,158 Def. tax liab. (net) 1,442 1,632 1,632 1,632 1,632 Capital employed 57,103 64,008 72,586 88, ,760 Net fixed assets 31,934 33,109 35,572 37,807 39,835 Investments of which, Liquid Net working capital 21,116 26,529 31,681 36,401 41,361 Cash and bank balance 4,025 4,349 5,313 14,609 26,543 Capital deployed 57,103 64,008 72,586 88, ,760 Net debt 10,784 5,390 (1,155) (10,451) (22,385) WC days Book value (`/sh) Fig 3 Cash-flow statement (`m) PAT 8,875 13,428 17,856 20,493 23,864 + Non-cash items 2,605 2,599 2,537 2,765 2,972 Cash profit 11,480 16,026 20,393 23,258 26,836 - Incr./(decr.) in WC 6,207 6,228 5,151 4,720 4,960 Operating cash-flow 5,272 9,798 15,241 18,538 21,875 - Capex 8,737 3,761 5,000 5,000 5,000 Free cash-flow (3,464) 6,037 10,241 13,538 16,875 - Dividend 1,777 2,094 3,697 4,242 4,941 + Equity raised Debt raised 4,932 (4,255) (5,581) Investments (4) (7) Misc. items (130) (628) Net cash-flow (176) ,296 11,934 + Op. cash & bank bal. 4,201 4,025 4,349 5,313 14,609 Cl. cash & bank bal. 4,025 4,348 5,313 14,609 26,543 Fig 5 PE band Fig 4 Ratio `976 P/E (x) P/B (x) EV/EBITDA (x) RoE (%) RoCE (%) Dividend yield (%) Dividend payout (%) Asset turnover (x) Net Debt/Equity (x) (0.0) (0.1) (0.2) Net debt/ebitda (x) (0.0) (0.3) (0.6) Net debt/op. CF (x) (0.1) (0.6) (1.0) Interest coverage (x) P/CEPS (x) EV/ sales (x) M-cap/sales (x) Fig 6 Revenue break-up (FY14e) (`) Lupin 25x 20x 15x 10x ROW 9% India 24% APIs 10% US 42% Mar-06 Aug-06 Dec-06 May-07 Sep-07 Feb-08 Jun-08 Nov-08 Mar-09 Aug-09 Dec-09 May-10 Sep-10 Feb-11 Jun-11 Oct-11 Mar-12 Jul-12 Dec-12 Apr-13 Sep-13 Japan 12% EU 3% Source: Bloomberg, Anand Rathi Research Anand Rathi Research 10

13 India I Equities Healthcare Result Preview 7 April 2014 Ranbaxy Laboratories Base-business margins to continue under pressure; Sell Key takeaways Margin pressure to continue. On the low base we expect 13.5% yoy revenue growth for Ranbaxy Laboratories, led by strong growth in the base US business and a steady increase in revenue from the East EU and CIS businesses. We expect the base business EBITDA margin to improve 100bps yoy, to 8.6%, mainly on account of the very low base in 1QCY13, though it would decline 70bps qoq. We believe that the base-business margins would be under pressure (below 10%) in the short to mid-term considering an additional import alert on the Taonsa plant. We expect adjusted PAT to grow 14.7% yoy led by the low base of margins and a steady revenue increase. We have not factored in any MTM forex gain/loss on currency fluctuation. Steady revenue growth to continue. We expect revenue from the base business (excl. Para IV) to grow 13.5% yoy, led by 25%+ yoy growth in the US generics with greater sales of Absorica. Eastern EU and CIS are expected to report 12%+ yoy growth in revenue, led by new product launches and more supplies. Domestic formulations would be under pressure due to the impact of the implementation of the new drug pricing policy. Hence, we estimate just 5% yoy growth in domestic revenue. Uncertainties over US launches. Due to ongoing issues with the US FDA compliance and import alerts on its four plants, the launch timeline of key products such as Diovan, Valcyte and Nexium in the US are uncertain. The Nexium patent expiry is due in May 14 and Ranbaxy is the sole FTF (first to file) ` for it. Clarity on these launches would be key to revived margins. Our take. We expect that the base business margin recovery would be further delayed with an import alert on the Mohali unit and the Taonsa plant. We expect 10% revenue and 45% adjusted base business PAT CAGRs over CY13-15, with base business margin expanding more than 300bps. We maintain a Sell on the stock, with a price target of `356 based on 18x one-year forward earnings. Risks. Currency fluctuations, regulatory hurdles. Rating: Sell Target Price: `356 Share Price: `460 Key data RBXY IN / RANB.BO 52-week high / low `490 / `254 Sensex / Nifty / m average volume US$7.9m Market cap `194bn / US$3.1bn Shares outstanding 423.1m Shareholding pattern (%) Dec 13 Sep 13 Jun 13 Promoters of which, Pledged Free Float Foreign Institutions Domestic Institutions Public Financials (YE Dec) CY14e CY15e Sales (`m) 118, ,484 Net profit (`m) 5,268 7,926 EPS (`) Growth (%) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%) Quarterly results (YE Dec) 1QCY13 1QCY14e % yoy CY13 CY14e % yoy Sales (`m) 25,006 28, , , EBITDA (`m) 1,906 2, ,240 10, EBITDA margin (%) bps bps Interest (`m) ,046 2, Depreciation (`m) ,323 3, Other income (`m) (43.5) 1,591 1, PBT (`m) 1,670 1, (7,714) 6, Tax (`m) (24.2) 2,216 1,486 (33.0) Tax rate (%) (120) (587.9) 22.0 NA PAT (`m) 894 1, ,060 5, Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

14 7 April 2014 Ranbaxy Labs Base business margins to remain under pressure; Sell Quick Glance Financials and Valuations Fig 1 Income statement (`m) Year-end: Dec CY11 CY12 CY13e CY14e CY15e Net revenues 101, , , , ,484 Revenue growth (%) (13.3) Op. expenses 84, ,218 99, , ,443 EBIDTA 16,928 19,379 8,240 10,833 14,041 EBITDA margin (%) Interest expenses 768 1,796 2,046 2,258 2,258 - Depreciation 3,156 3,202 3,323 3,528 3,569 + Other income 4,274 2,722 1,442 1,707 1,947 - Tax 2,137 2,939 2,216 1,486 2,236 Effective tax rate (%) (588) Reported PAT (28,997) 9,228 (10,116) 5,268 7,926 +/- Extraordinary items (44,209) (4,839) (12,176) 0 0 +/- Minority interest Adjusted PAT 15,044 13,072 2,060 5,268 7,926 Adj. FDEPS (`/share) Adj. FDEPS growth (%) 13.7 (13.3) (84.2) Fig 2 Balance sheet (`m) Year-end: Dec CY11 CY12 CY13e CY14e CY15e Share capital 2,110 2,115 2,115 2,115 2,115 Reserves & surplus 26,584 38,718 32,901 37,552 44,551 Net worth 28,694 40,832 35,017 39,668 46,666 Minority interest Total debt 44,532 48,462 59,648 59,648 59,648 Def. tax liab. (net) (375) (357) (712) (712) (712) Capital employed 74,036 89,838 94,900 99, ,550 Net fixed assets 51,228 52,156 54,719 55,190 55,622 Investments ,020 1,020 1,020 - of which, Liquid 3, Net working capital (8,856) (9,113) 24,651 27,274 30,128 Cash and bank balance 30,681 46,004 14,511 16,068 19,781 Capital deployed 74,036 89,838 94,900 99, ,550 Net debt 9,889 2,437 45,124 43,567 39,854 WC days Book value (`/sh) Fig 3 Cash-flow statement (`m) Year-end: Dec CY11 CY12 CY13e CY14e CY15e PAT (29,002) 9,510 (9,930) 5,268 7,926 + Non-cash items 19,749 6,208 8,162 3,528 3,569 Cash profit (9,253) 15,718 (1,767) 8,796 11,494 - Incr./(decr.) in WC (21,745) 709 (20,041) (1,367) (1,492) Operating cash-flow 12,492 15,009 18,273 10,163 12,987 - Capex 5,040 4,786 4,000 4,000 4,000 Free cash-flow 7,452 10,224 14,273 6,163 8,987 - Dividend (3) Equity raised Debt raised 1,559 8,135 11, Investments (4,002) (192) Misc. items 5,299 3,183 53,853 3,077 4,927 Net cash-flow 7,717 15,368 (31,494) 1,557 3,714 + Op. cash & bank bal. 32,644 30,637 46,004 14,511 16,068 Cl. cash & bank bal. 30,681 46,004 14,510 16,068 19,781 Fig 4 Ratio `460 Year-end: Dec CY11 CY12 CY13e CY14e CY15e P/E (x) P/B (x) EV/EBITDA (x) RoE (%) RoCE (%) Dividend yield (%) (0.0) Dividend payout (%) Asset turnover (x) Net Debt/Equity (x) Net debt/ebitda (x) Net debt/op. CF (x) Interest coverage (x) P/CEPS (x) EV/ sales (x) M-cap/sales (x) Fig 5 PE band Fig 6 Revenue break-up (CY14e) x 40x 30x 20x Africa & ME 11% Asia Pacific & Latam 7% APIs 5% Canada 3% India 18% West EU 8% US 32% 0 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 East EU & CIS 16% Source: Bloomberg, Anand Rathi Research Anand Rathi Research 12

15 India I Equities Healthcare Result Preview 7 April 2014 Cadila Healthcare Growth recovery to sustain; Buy Rating: Buy Target Price: `1,091 Share Price: `1,017 Key takeaways Healthy revenue growth. We expect 17.2% yoy revenue growth for Cadilla Healthcare, mainly led by US generics and exports to emerging markets. Its EBITDA margin would decline 210bps yoy, to 16.7%, due to reduced other operating income and higher personnel costs. We expect adjusted PAT to grow 10.4% yoy, lower than revenue growth, due to a lower EBITDA margin. We have not factored in any gain/loss on account of foreign currency fluctuations. US, a key growth driver. We expect its US revenue to grow 52% yoy due to the low-base effect, new product approvals in FY14 and favourable currency movements. We expect its domestic formulations business including Biochem, to grow 9.4% yoy, due to the potential impact of the new drugpricing policy and the general slowdown in the sector growth. Overall, export revenues are expected to grow 33% yoy driven by the US, emerging markets and API businesses. However, we expect a marginal decline in revenue from Japan. Strong ry growth ahead. We expect the company to report strong growth ahead, led by more product approvals for the US market and recovery in domestic formulations. Over FY13-16, we expect CAGRs of 14% in revenue and 16.5% in adjusted PAT, with decent RoE and RoCE of ~24% and ~19%, respectively, by FY16. Our ` take. We expect the company to report 17.2% yoy revenue growth in 4QFY14 led by US generics and emerging markets. We estimate its adjusted PAT would grow 10.4%. The stock currently trades at 22x FY15e and 18.6x FY16e earnings. We maintain a Buy, with a price target of `1,091, based on 20x Sep 15e earnings. Risks. Currency fluctuations, regulatory hurdles. Key data CDH IN / CADI.BO 52-week high / low `1079 / `631 Sensex / Nifty / m average volume US$1.5m Market cap `208bn / US$3.5bn Shares outstanding 205m Shareholding pattern (%) Dec '13 Sep '13 Jun '13 Promoters of which, pledged Free float Foreign Institutions Domestic Institutions Public Financials (YE Mar) FY14e FY15e Sales (`m) 71,526 81,901 Net profit (`m) 7,329 9,471 EPS (`) Growth (%) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%) Quarterly results (YE Mar) 4QFY13 4QFY14e % yoy FY13 FY14e % yoy Sales (`m) 16,212 19, ,081 71, EBITDA (`m) 3,054 3, ,351 11, EBITDA margin (%) bps bps Interest (`m) (10.6) 1,228 1, Depreciation (`m) ,828 1, Other income (`m) PBT (`m) 2,171 2, ,112 9, Tax (`m) ,176 1,114 (48.8) Tax rate (%) bps bps PAT (`m) 1,789 1, ,011 7, Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

16 7 April 2014 Cadila Healthcare Growth recovery to sustain; Buy Quick Glance Financials and Valuations Fig 1 Income statement (`m) Net revenues 52,633 63,081 71,526 81,901 93,098 Revenue growth (%) Op. expenses 41,795 51,649 60,074 67,665 76,536 EBIDTA 10,839 11,432 11,452 14,237 16,562 EBITDA margin (%) Interest expenses 672 1,261 1, Depreciation 1,579 1,828 1,979 2,177 2,335 + Other income Tax 1,130 1,195 1,058 1,746 2,546 Effective tax rate (%) Reported PAT 6,812 6,917 7,757 9,893 11,599 +/- Extraordinary items (1,177) (600) /- Minority interest Adjusted PAT 7,536 7,065 7,329 9,471 11,169 Adj. FDEPS (`/share) Adj. FDEPS growth (%) 6.0 (6.2) Fig 2 Balance sheet (`m) Share capital 1,024 1,024 1,024 1,024 1,024 Reserves & surplus 24,712 29,379 35,023 42,278 50,833 Net worth 25,736 30,403 36,047 43,302 51,857 Minority interest 904 1,193 1,582 2,004 2,434 Total debt 22,893 26,814 23,814 17,814 12,814 Def. tax liab. (net) 1,185 1,005 1,005 1,005 1,005 Capital employed 50,749 59,415 62,447 64,124 68,110 Net fixed assets 33,318 38,570 42,591 44,414 46,079 Investments 242 1,145 1,145 1,145 1,145 - of which, Liquid Net working capital 12,523 13,879 16,027 18,217 20,814 Cash and bank balance 4,666 5,821 2, Capital deployed 50,749 59,415 62,447 64,124 68,109 Net debt WC days Book value (`/sh) Fig 3 Cash-flow statement (`m) PAT 6,812 6,917 7,757 9,893 11,599 + Non-cash items 1,637 1,828 1,979 2,177 2,335 Cash profit 8,449 8,746 9,736 12,070 13,934 - Incr./(decr.) in WC 3,891 1,356 2,148 2,191 2,597 Operating cash-flow 4,558 7,390 7,588 9,879 11,337 - Capex 12,438 6,880 6,000 4,000 4,000 Free cash-flow (7,880) 510 1,588 5,879 7,337 - Dividend 2,066 1,533 1,724 2,216 2,614 + Equity raised Debt raised 11,977 3,921 (3,000) (6,000) (5,000) - Investments Misc. items Net cash-flow 1,714 1,154 (3,136) (2,337) (276) + Op. cash & bank bal. 2,952 4,666 5,821 2, Cl. cash & bank bal. 4,666 5,820 2, Fig 4 Ratio `1017 P/E (x) P/B (x) EV/EBITDA (x) RoE (%) RoCE (%) Dividend yield (%) Dividend payout (%) Asset turnover (x) Net Debt/Equity (x) Net debt/ebitda (x) Net debt/op. CF (x) Interest coverage (x) P/CEPS (x) EV/ sales (x) M-cap/sales (x) Fig 5 PE band Fig 6 Revenue break-up (FY14e) 1,200 1, Cadila 22x 14x Animal Health 4% Emerging Markets 5% Japan 1% APIs 5% W ellness 6% Domestic formulations 37% x Brazil 3% EU 6% JVs 8% Apr-05 Oct-05 Apr-06 Oct-06 Apr-07 Nov-07 May-08 Nov-08 May-09 Nov-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Jan-13 Jul-13 Jan-14 US generics 25% Source: Bloomberg, Anand Rathi Research Anand Rathi Research 14

17 India I Equities Healthcare Result Preview 7 April 2014 Wockhardt Import alert to impact performance; Sell Key takeaways Revenue, EBITDA margin constrained. We expect Wockhardt s 4QFY14 revenue to come 18.6% lower yoy because of the import alert by the US FDA regarding its Waluj plant and Chikalthana unit (which would have hit US supplies), and the impact on its domestic business from the ban on Proxyvon and the new pricing policy. Hence, we expect the EBITDA margin to decline 1,820bps yoy, to 18.5%. Constrained revenue growth and the EBITDA margin drop would lead to a 57.6% yoy dip in adjusted PAT. Import alerts to hit growth momentum. We expect a 35% yoy decline in the US business, as product supplies were hit by the import alert at the Waluj plant as well as the Chikalthana unit. Growth in the US market would be negative in coming quarters as the base effect kicks in and an unlikely site transfer in the near term. We expect subdued growth of just 5% yoy in revenue from domestic formulations due to the impact of the implementation of the new drug pricing policy and the ban on Proxyvon in India. The EU and the RoW are likely to report positive single-digit revenue growth. Chikalthana unit also under import alert. The company has also received an import-alert status from the US FDA regarding its Chikalthana unit, which added US$230m revenue in FY13. We believe the resolution of the import alert at both Waluj and Chikalthana would take more than a year, considering similar situations with other companies in the past and issues raised by the US FDA. We do not expect a site transfers of products in the short term. Our take. In the past two years, Wockhardt has commendably turned around, largely driven by its balance-sheet restructuring, the scale-up in its US business and the rationalising of its overall operations. The recent import alerts, however, would curb the momentum in the short- to mid-term. We maintain a Sell, with a target of `398, based on 8x Sep 15e earnings. Risks. Currency fluctuations, regulatory hurdles. Rating: Sell Target Price: `398 Share Price: `607 Key data WPL IN / WCKH.BO 52-week high / low `2048 / `337 Sensex / Nifty / m average volume US$7m Market cap `66bn / US$1.1bn Shares outstanding 109.6m Shareholding pattern (%) Dec 13 Sep 13 Jun 13 Promoters of which, Pledged Free Float Foreign Institutions Domestic Institutions Public Financials (YE Mar) FY14e FY15e Sales (`m) 48,091 38,910 Net profit (`m) 7,186 4,928 EPS (`) Growth (%) (53.6) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%) Quarterly results (YE Mar) 4QFY13 4QFY14e % yoy FY13 FY14e % yoy Sales (`m) 14,855 12,091 (18.6) 56,094 48,091 (14.3) EBITDA (`m) 5,457 2,237 (59.0) 20,904 9,962 (52.3) EBITDA margin (%) bps bps Interest (`m) (49.8) 2, (60.7) Depreciation (`m) ,221 1, Other income (`m) (16.6) PBT (`m) 4,271 1,748 (59.1) 18,371 8,166 (55.5) Tax (`m) (81.1) 2, (62.0) Tax rate (%) bps bps PAT (`m) 3,709 1,573 (57.6) 15,500 7,186 (53.6) Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix Anand Rathi Research India Equities

18 7 April 2014 Wockhardt Import alert to impact performance; Hold Quick Glance Financials and Valuations Fig 1 Income statement (` m) Net revenues 46,138 56,094 48,091 38,910 43,502 Revenue growth (%) (14.3) (19.1) Op. expenses 33,467 35,191 38,129 31,712 35,019 EBIDTA 12,671 20,904 9,962 7,198 8,483 EBITDA margin (%) Interest expenses 2,144 2, Depreciation 1,225 1,221 1,376 1,556 1,736 + Other income Tax 2,351 2, ,053 Effective tax rate (%) Reported PAT 1,699 15,789 7,186 4,928 5,969 +/- Extraordinary items (5,497) /- Minority interest Adjusted PAT 5,382 15,500 7,186 4,928 5,969 Adj. FDEPS (`/share) Adj. FDEPS growth (%) (53.6) (31.4) 21.1 Fig 2 Balance sheet (` m) Share capital Reserves & surplus 6,549 23,508 29,013 32,788 37,360 Net worth 7,097 24,056 29,560 33,335 37,907 Minority interest Total debt 40,428 23,690 10,512 6,512 6,512 Def. tax liab. (net) 1, Capital employed 48,534 47,746 40,072 39,847 44,419 Net fixed assets 34,736 24,805 27,848 29,292 30,555 Investments of which, Liquid Net working capital 5,891 11,712 11,252 9,072 10,172 Cash and bank balance 7,000 10, ,456 3,665 Capital deployed 48,534 47,505 40,072 39,847 44,419 Net debt ,730 9,567 5,055 2,847 WC days Book value (`/sh) Fig 3 Cash-flow statement (`m) PAT 3,429 15,789 7,186 4,928 5,969 + Non-cash items 2,955 1,221 1,376 1,556 1,736 Cash profit 6,384 17,011 8,563 6,484 7,705 - Incr./(decr.) in WC 3,701 5,697 (166) (1,844) 932 Operating cash-flow 2,683 11,313 8,729 8,328 6,773 - Capex 2,025 3,000 3,000 3,000 3,000 Free cash-flow 658 8,313 5,729 5,328 3,773 - Dividend 3 3,201 1,682 1,153 1,397 + Equity raised 0 (4,628) Debt raised (1,083) (12,109) (13,179) (4,000) 0 - Investments 11 (881) Misc. items (2,610) (14,705) 884 (337) 169 Net cash-flow 2,171 3,961 (10,015) 512 2,208 + Op. cash & bank bal. 4,829 7,000 10, ,456 Cl. cash & bank bal. 7,000 10, ,457 3,664 Fig 4 Ratio `607 P/E (x) P/B (x) EV/EBITDA (x) RoE (%) RoCE (%) Dividend yield (%) Dividend payout (%) Asset turnover (x) Net debt/equity (x) Net debt/ebitda (x) Net debt/op. CF (x) Interest coverage (x) P/CEPS (x) EV/ sales (x) M-cap/sales (x) Fig 5 PE band Fig 6 Revenue break-up (FY14e) 3,000 2,500 ROW 9% 2,000 1,500 1,000 18x EU 25% US 48% 500 WPL 10x 0 Apr-05 Dec-05 Sep-06 May-07 Feb-08 Oct-08 Jul-09 Mar-10 Dec-10 Aug-11 May-12 Jan-13 Oct-13 2x India 18% Source: Bloomberg, Anand Rathi Research Anand Rathi Research 16

19 India I Equities Healthcare Result Preview 7 April 2014 Glenmark Pharmaceuticals US and India to drive growth; Buy Key takeaways Revenue growth intact. We expect 20% yoy revenue growth in Glenmark Pharmaceuticals base business though, incl. 4QFY13 NCE income (US$4m), reported growth was 22.2% yoy. The growth would have been driven by its US generics and its formulations business in semi-regulated markets and India. We estimate a 51-bp rise in the EBIDTA margin, but a 67-bp decline in the base business. We expect adjusted PAT to grow merely 1.6% yoy, slower than revenues, due to higher depreciation charges and the effective tax rate. US generics, domestic formulations, the key drivers. We expect its global generics to report 24.4% yoy revenue growth, largely driven by a 32% yoy rise in its US generics revenue. Domestic formulations would continue to be on a strong growth trajectory, with an 18% yoy increase in revenue. Its other businesses such as Latin America and ROW markets could show flat revenue growth. Revenue from semi-regulated market formulations is expected to show strong, 33% yoy, growth due to the low base. Consistent growth momentum. We expect Glenmark Pharma to report 17.3% base business revenue CAGR and 20.9% adjusted PAT CAGR, over FY13-16 in base business, led by strong growth in key markets such as the US and India. Higher PAT growth with a better working-capital cycle would result in decent free-cash-flow generation. This would help bring down the debt-equity ratio from the present 0.8x to 0.2x by FY16. Any positive news regarding a NCE (new chemical entity) would provide the upside to our estimates. ` Our take. We expect 4QFY14 revenue growth in its base business to come at 20% yoy, driven by US generics and domestic formulations. We estimate its adjusted PAT to show a slight, 1.6% yoy, increase due to the higher depreciation charge and a high tax rate. We maintain a Buy, with a price target of `645, based on 18x Sep 15e core earnings, `27 for its NCE pipeline and `12 for the Zetia opportunity. Risks. Currency fluctuations, regulatory hurdles. Rating: Buy Target Price: `645 Share Price: `586 Key data GNP IN / GLEN.BO 52-week high / low `612/ `458 Sensex / Nifty / m average volume US$5.8m Market cap `158bn / US$2.6bn Shares outstanding 270m Shareholding pattern (%) Dec 13 Sep 13 Jun 12 Promoters of which, Pledged Free Float Foreign Institutions Domestic Institutions Public Financials (YE Mar) FY14e FY15e Sales (`m) 60,518 69,783 Net profit (`m) 7,055 9,123 EPS (`) Growth (%) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%) Quarterly results (YE Mar) 4QFY13 4QFY14e % yoy FY13 FY14e % yoy Sales (`m) 13,355 16, ,123 60, EBITDA (`m) 2,694 3, ,157 12, EBITDA margin (%) bps bps Interest (`m) ,600 1, Depreciation (`m) ,270 2, Other income(`m) (46) 51 (210.8) PBT (`m) 1,744 2, ,337 9, Tax (`m) ,629 1, Tax rate (%) bps bps PAT (`m) 1,844 1, ,697 7, Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

20 7 April 2014 Glenmark Pharma US and India to drive growth; Buy Quick Glance Financials and Valuations Fig 1 Income statement (`m) Net revenues 40,206 50,123 60,518 69,783 80,172 Revenue growth (%) Op. expenses 30,226 39,474 48,018 55,128 63,336 EBIDTA 9,980 10,650 12,500 14,654 16,836 EBITDA margin (%) Interest expenses 1,466 1,600 1,642 1,365 1,028 - Depreciation 979 1,270 2,031 2,126 2,202 + Other income Tax 238 1,107 1,990 2,281 2,774 Effective tax rate (%) Reported PAT 4,603 6,230 7,055 9,123 11,096 +/- Extraordinary items (2,837) (550) /- Minority interest Adjusted PAT 7,302 6,697 7,055 9,123 11,096 Adj. FDEPS (`/share) Adj. FDEPS growth (%) 61.0 (8.4) Fig 2 Balance sheet (`m) Share capital Reserves & surplus 23,746 27,359 33,589 41,644 51,442 Net worth 24,016 27,630 33,860 41,915 51,713 Minority interest Total debt 23,225 27,649 22,881 19,111 12,526 Def. tax liab. (net) (2,674) (3,803) (3,803) (3,803) (3,803) Capital employed 44,817 51,720 53,182 57,467 60,680 Net fixed assets 24,856 28,286 29,755 30,628 31,426 Investments of which, Liquid Net working capital 16,409 17,001 20,741 24,087 27,705 Cash and bank balance 3,219 6,073 2,256 2, Capital deployed 44,817 51,720 53,182 57,468 60,680 Net debt 20,003 21,573 20,622 16,848 11,534 WC days Book value (`/sh) Fig 3 Cash-flow statement (`m) PAT 3,535 5,708 7,055 9,123 11,096 + Non-cash items 979 1,270 2,031 2,126 2,202 Cash profit 4,514 6,978 9,086 11,249 13,298 - Incr./(decr.) in WC 139 1,505 3,925 3,508 3,795 Operating cash-flow 4,374 5,473 5,162 7,741 9,502 - Capex 2,733 4,705 3,500 3,000 3,000 Free-cash-flow 1, ,662 4,741 6,502 - Dividend ,067 1,298 + Equity raised Debt raised 2,108 4,424 (4,768) (3,770) (6,586) - Investments Misc. items 1,828 1,661 (206) (182) (199) Net cash-flow 1,270 2,872 (3,796) 25 (1,250) + Op. cash & bank bal. 1,949 3,201 6,052 2,235 2,239 Cl. cash & bank bal. 3,219 6,073 2,256 2, Fig 4 Ratio `586 P/E (x) P/B (x) EV/EBITDA (x) RoE (%) RoCE (%) Dividend yield (%) Dividend payout (%) Asset turnover (x) Net Debt/Equity (x) Net debt/ebitda (x) Net debt/op. CF (x) Interest coverage (x) P/CEPS (x) EV/ sales (x) M-cap/sales (x) Fig 5 PE band Fig 6 Revenue break-up (FY14e) (`) x 20x Other generics 4% APIs 8% Domestic formulations 26% x 10x Other specialty formulations 26% Mar-06 Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 Jun-12 Dec-12 Jun-13 US generics 36% Source: Bloomberg, Anand Rathi Research Anand Rathi Research 18

21 India I Equities Healthcare Result Preview 7 April 2014 Torrent Pharmaceuticals Base business growth to be strong, Buy Key takeaways Strong performance in base business expected. We expect Torrent Pharmaceuticals 4QFY14 revenue to have grown 12.6% yoy. However, its base business revenue (excl. other operating income) would come at 17% yoy, driven by strong growth in exports and domestic formulations. The EBITDA margin is expected to decline 280bps yoy, to 22.5%, due to lower other operating income, which was exceptionally high in 4QFY13. We expect its base-business adjusted PAT to have grown a robust 35% yoy, led by margin betterment in the base business and a lower effective tax rate. Overall business growth. We expect its India formulations to have grown 13.3% yoy, in line with past growth rates. We estimate strong, 21% yoy, growth in revenue from export formulations, largely driven by higher supplies to the US and EU markets. We expect revenue from Cymbalta in this quarter to be a high, more than>us$5m. Revenue from contract manufacturing to is likely to be nearly flat, with just 3% yoy growth. Elder acquisition to be EPS accretive from FY16. Torrent Pharma recently acquired from Elder Pharma 30 brands in the domestic market for `20bn. We expect this acquisition to be EPS dilutive in FY15 due to high interest cost and to be EPS accretive from FY16, by `3.5 a share. However, short-term pressure on profit growth would persist due to high interest costs on debt raised for this acquisition. Our take. We expect the company to report 20.9% revenue and 20% adjusted PAT ` CAGRs over FY13-16, with EBITDA margin improving 190bps. The acquisition of Elder s domestic brands would be the key contributor to the margin expansion as well as to revenue growth. At present, the stock trades at 14.7x FY15e and 12x FY16e earnings. We maintain a Buy on it, with a price target of `702, based on 15x FY16e earnings. Risks. Currency fluctuations, regulatory hurdles. Rating: Buy Target Price: `702 Share Price: `561 Key data INDR IN / INRM.BO 52-week high / low `578/`334 Sensex / Nifty / m average volume US$1.5m Market cap `94.8bn / US$1.53 bn Shares outstanding m Shareholding pattern (%) Dec 13 Sep 13 Jun 13 Promoters of which, Pledged Free Float Foreign Institutions Domestic Institutions Public Financials (YE Mar) FY14e FY15e Sales (`m) 39,174 49,761 Net profit (`m) 6,104 6,472 EPS (`) Growth (%) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%) (16.1) 70.0 Quarterly results (YE Mar) 4QFY13 4QFY14e % yoy FY13 FY14e % yoy Sales (`m) 8,710 9, ,111 39, EBITDA (`m) 2,200 2, ,922 8, EBITDA margin (%) bps bps Interest (`m) Depreciation (`m) , Other income(`m) (12.1) PBT (`m) 1, ,816 7, Tax (`m) (26.2) 1,723 1,722 (0.1) Tax rate (%) bps bps PAT (`m) 1,368 1, ,608 6, Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

22 7 April 2014 Torrent Pharmaceuticals Base business growth to be strong, Buy Quick Glance Financials and Valuations Fig 1 Income statement (`m) Net revenues 26,959 32,111 39,174 49,761 56,778 Revenue growth (%) Op. expenses 21,953 25,189 30,301 38,316 43,435 EBIDTA 5,006 6,922 8,873 11,445 13,343 EBITDA margin (%) Interest expenses ,079 1,879 - Depreciation ,046 1,326 1,606 + Other income Tax 723 1,467 1,722 1,825 2,235 Effective tax rate (%) Reported PAT 2,841 4,328 6,104 6,472 7,925 +/- Extraordinary items /- Minority interest Adjusted PAT 3,363 4,608 6,104 6,472 7,925 Adj. FDEPS (`/share) Adj. FDEPS growth (%) Fig 2 Balance sheet (`m) Share capital Reserves & surplus 11,515 13,796 17,421 22,003 27,615 Net worth 11,938 14,219 18,267 22,849 28,461 Minority interest Total debt 5,787 6,929 5,791 20,791 16,791 Def. tax liab. (net) Capital employed 18,275 21,409 24,319 43,901 45,512 Net fixed assets 9,156 11,051 14,005 36,678 39,072 Investments 1, of which, Liquid Net working capital 1,135 3,484 1,543 2,600 3,077 Cash and bank bal 6,743 6,270 8,167 4,019 2,759 Capital deployed 18,275 21,409 24,319 43,901 45,512 Net debt WC days Book value (`/sh) Fig 3 Cash-flow statement (`m) Year-end: Mar FY12 FY13 FY14e FY14e FY16e PAT 2,904 4,093 6,104 6,472 7,925 + Non-cash items ,046 1,326 1,606 Cash profit 3,762 4,664 7,151 7,798 9,532 - Incr./(decr.) in WC (903) 2,349 (1,941) 1, Operating cash-flow 4,665 2,315 9,092 6,741 9,055 - Capex 1,784 1,371 4,000 24,000 4,000 Free cash-flow 2, ,092 (17,259) 5,055 - Dividend 836 2,273 1,782 1,890 2,314 + Equity raised Debt raised 67 1,142 (1,138) 15,000 (4,000) - Investments (219) (636) Misc. items Net cash-flow 1,955 (473) 1,897 (4,148) (1,259) + Op. cash & bank bal. 4,788 6,743 6,270 8,167 4,019 Cl. cash & bank bal. 6,743 6,270 8,167 4,019 2,760 Fig 4 Ratio `561 P/E (x) P/B (x) EV/EBITDA (x) RoE (%) RoCE (%) Dividend yield (%) Dividend payout (%) Asset turnover (x) Net Debt/Equity (x) Net debt/ebitda (x) Net debt/op. CF (x) Interest coverage (x) P/CEPS (x) EV/ sales (x) M-cap/sales (x) Fig 5 PE band Fig 6 Revenue break-up (FY14e) Source: Bloomberg, Anand Rathi Research Anand Rathi Research 20

23 India I Equities Healthcare Result Preview 7 April 2014 Apollo Hospitals Hospitals business to drive growth; Hold Rating: Hold Target Price: `1,026 Share Price: `900 Key takeaways Revenue growth healthy. We expect 20.3% yoy revenue growth for Apollo Hospitals in 4QFY14, led by a steady rise in its domestic hospitals and a continuing ramp-up in its pharmacy business. Its EBITDA margin is expected to rise slightly, by 50bps, to 16.2%. We expect adjusted PAT to grow 22.8% yoy, following rising revenues, higher EBIDTA margin and other income. However, we do not expect any major improvement in the EBITDA margins in the short to mid term due to the substantial addition in beds. Hospitals, pharmacy, growth drivers. We expect 21% growth to continue in the hospitals business, led by rising occupancy levels and a steady increase in average revenue per operating bed. Its pharmacy business is expected to increase 16% yoy on account of the continuous increase in the number of pharmacies and the rise in revenue per store (with more pharmacies maturing). The EBITDA margin of the pharmacy business has been rising consistently, and could result in better overall margins in teh long term as the near- to midterm outlook on margins is weak. Expansion plans on track. The company s plan of adding, in the next three years, ~2,310 beds (to the present capacity of 5,732 operational beds) is on track. This includes 570 additional beds under the REACH (tier-ii and tier-iii cities) hospitals category. Investment for this expansion is estimated at `22bn, of which the company has incurred `6bn till Dec 13. ` Our take. In 4QFY14, we expect Apollo Hospitals to report 20.3% yoy revenue growth and 22.8% yoy adjusted PAT growth, led by the steady hospitals performance and the ramp-up in its pharmacy business. The stock trades at 15.1x FY15e and 12.5x FY16e EV/EBITDA. We maintain a Hold on it, with a price target of `1,026, based on 15x Sep 15e hospitals EBITDA and 0.5x Sep 15e pharmacy sales. Risks. High capex and delay in expansion projects. Quarterly results (YE Mar) (standalone) 4QFY13 4QFY14e % yoy/bps FY13 FY14 % yoy/bps Sales (`m) 8,483 10, ,178 38, EBITDA (`m) 1,328 1, ,536 6, EBITDA margin (%) bps bps Interest (`m) Depreciation (`m) ,085 1, Other income(`m) (24.2) PBT (`m) 922 1, ,035 4, Tax (`m) (2.1) Tax rate (%) bps bps PAT (`m) ,046 3, Key data APHS IN / APLH.BO 52-week high / low `1,097 / `801 Sensex / Nifty / m average volume US$7.5m Market cap `126bn / US$2.1bn Shares outstanding 140.5m Shareholding pattern (%) Dec '13 Sep '13 Jun '13 Promoters of which, Pledged Free Float Foreign Institutions Domestic Institutions Public Financials (YE Mar) FY14e FY15e Sales (`m) 44,860 53,009 Net profit (`m) 3,391 4,607 EPS (`) Growth (%) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%) Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

24 7 April 2014 Apollo Hospitals Hospitals business to drive growth; Hold Quick Glance Financials and Valuations Fig 1 Income statement (`m) Net revenues 31,475 37,688 44,860 53,009 60,825 Revenue growth (%) Op. expenses 26,344 31,605 37,683 43,998 50,028 EBIDTA 5,131 6,083 7,178 9,012 10,796 EBITDA margin (%) Interest expenses 891 1,033 1,137 1, Depreciation 1,239 1,423 1,694 1,908 1,875 + Other income Tax 1,150 1,050 1,191 1,619 2,169 Effective tax rate (%) Reported PAT 2,194 3,045 3,391 4,607 6,174 +/- Extraordinary items /- Minority interest (12) (17) Adjusted PAT 2,194 2,982 3,391 4,607 6,174 Adj. FDEPS (`/share) Adj. FDEPS growth (%) Fig 2 Balance sheet (`m) Share capital Reserves & surplus 24,396 26,772 29,568 33,366 38,456 Net worth 25,068 27,468 30,263 34,062 39,152 Minority interest Total debt 7,494 11,368 11,368 11,368 11,368 Def. tax liab. (net) Capital employed 34,238 41,303 44,099 47,897 52,987 Net fixed assets 22,205 27,440 30,246 33,338 36,462 Investments 5,642 5,267 5,267 5,267 5,267 - of which, Liquid 1,220 3,788 3,788 3,788 3,788 Net working capital 4,023 5,396 6,443 7,652 8,707 Cash and bank balance 2,368 3,201 2,143 1,641 2,551 Capital deployed 34,238 41,303 44,098 47,897 52,987 Net debt 5,125 8,167 9,225 9,727 8,817 WC days Book value (`/sh) Fig 3 Cash-flow statement (`m) PAT 2,181 3,028 3,391 4,607 6,174 + Non-cash items 1,239 1,423 1,694 1,908 1,875 Cash profit 3,420 4,451 5,085 6,515 8,049 - Incr./(decr.) in WC 739 1,372 1,047 1,209 1,055 Operating cash-flow 2,681 3,079 4,038 5,306 6,994 - Capex 3,865 6,555 4,500 5,000 5,000 Free-cash-flow (1,184) (3,477) (462) 306 1,994 - Dividend ,083 + Equity raised 4, Debt raised (1,414) 3, Investments 622 (374) Misc. items 1 (595) (0) (0) (0) Net cash-flow (1,057) (502) Op. cash & bank bal. 1,781 2,368 3,201 2,143 1,641 Cl. cash & bank bal. 2,368 3,201 2,144 1,641 2,552 Fig 4 Ratio `900 P/E (x) P/B (x) EV/EBITDA (x) RoE (%) RoCE (%) Dividend yield (%) Dividend payout (%) Asset turnover (x) Net Debt/Equity (x) Net debt/ebitda (x) Net debt/op. CF (x) Interest coverage (x) P/CEPS (x) EV/ sales (x) M-cap/sales (x) Fig 5 EV/EBITDA band Fig 6 Revenue break-up (FY14e) 200, , , , ,000 20x 16x Pharmacy 33% Chennai 29% 100,000 80,000 APHS 12x 60,000 40,000 20,000 0 Aug-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Nov-11 May-12 Nov-12 May-13 Nov-13 Other hospitals 26% Hyderabad 12% Source: Bloomberg, Anand Rathi Research Anand Rathi Research 22

25 India I Equities Healthcare Result Preview 7 April 2014 Ipca Laboratories Growth on track; Buy Rating: Buy Target Price: `939 Share Price: `832 Key takeaways Growth momentum intact. We expect Ipca Laboratories 4QFY14 revenue growth to come at 24% yoy, led by strong growth in its export formulations and API businesses. We expect its EBITDA margin to improve 181bps yoy to 23%, on a better revenue mix and favourable currency movements. Led by strong revenue growth, better margins and a lower effective tax rate, we estimate 74% yoy adjusted PAT growth. The company would be reporting MTM loss/gain on its derivative contracts for hedging and foreign currency loans. This we have not factored into our estimates. Growth across business segments. Export formulations would be the key growth driver, with a 30% yoy rise in revenue, led by anti-malarial tenders in Africa and product launches in various areas. Its API business is expected to continue on a strong growth trajectory and we estimate 20% yoy growth in its API business, mainly driven led by exports. Its domestic formulations business is expected to register a healthy 18% yoy rise in revenue, even after considering the impact of the new drug-pricing policy. Commercial supplies from Indore plant to ramp up. The company had voluntarily informed the US FDA about some non-compliance activity at its Indore SEZ plant, which had been approved in Jul 12. The US FDA reinspected the plant in Apr 13 and re-approval came in Sep 13. The company would start meaningful commercial supplies from 1QFY15 as it has already received ` approvals for three products. Our take. We expect it to register strong 24% revenue and 25.3% adj. net profit CAGRs over FY13-16, along with EBITDA margin betterment of 181bps, to 22.8%. On the reasonable valuations, we maintain a Buy on the stock, with a price target of `939, based on 16x Sep 15e earnings. Risks. Currency fluctuations, regulatory hurdles. Key data IPCA IN / IPCA.BO 52-week high / low `907 / `492 Sensex / Nifty / m average volume US$1.3m Market cap `105bn / US$1.7 bn Shares outstanding 126.2m Shareholding pattern (%) Dec '13 Sep '13 Jun '13 Promoters of which, Pledged Free Float Foreign Institutions Domestic Institutions Public Financials (YE Mar) FY14e FY15e Sales (`m) 34,772 40,403 Net profit (`m) 5,323 6,325 EPS (`) Growth (%) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%) Quarterly results (YE Mar) 4QFY13 4QFY14e % yoy FY13 FY14e % yoy Sales (`m) 6,717 8, ,712 34, EBITDA (`m) 1,423 1, ,228 8, EBITDA margin (%) bps bps Interest (`m) (0.8) Depreciation (`m) , Other income (`m) (4.0) PBT (`m) 1,255 1, ,614 7, Tax (`m) (22.3) 927 1, Tax rate (%) bps bps PAT (`m) 708 1, ,768 5, Anand Rathi Share and Stock Brokers Limited does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Disclosures and analyst certifications are located in Appendix 1 Anand Rathi Research India Equities

26 7 April 2014 Ipca Labs Growth on track; Hold Quick Glance Financials and Valuations Fig 1 Income statement (`m) Net revenues 23,301 27,712 34,772 40,403 46,097 Revenue growth (%) Op. expenses 18,166 21,485 26,591 30,822 35,137 EBIDTA 5,135 6,228 8,181 9,580 10,960 EBITDA margin (%) Interest expenses Depreciation ,032 1,194 1,302 + Other income Tax 888 1,300 1,681 1,997 2,338 Effective tax rate (%) Reported PAT 2,802 3,314 5,323 6,325 7,404 +/- Extraordinary items (527) (633) /- Minority interest Adjusted PAT 3,203 3,768 5,323 6,325 7,404 Adj. FDEPS (`/share) Adj. FDEPS growth (%) Fig 2 Balance sheet (`m) Share capital Reserves & surplus 12,370 15,446 19,835 25,050 31,154 Net worth 12,623 15,699 20,087 25,302 31,407 Minority interest Total debt 5,315 5,234 5,234 3,534 1,534 Def. tax liab. (net) Capital employed 18,869 22,236 26,625 30,140 34,244 Net fixed assets 10,073 12,045 14,513 15,820 17,018 Investments of which, Liquid Net working capital 7,533 8,574 10,715 12,400 14,135 Cash and bank bal ,102 Capital deployed 18,869 22,236 26,625 30,139 34,244 Net debt 5,221 4,685 4,875 2, WC days Book value (`/sh) Fig 3 Cash-flow statement (`m) PAT 2,802 3,314 5,323 6,325 7,404 + Non-cash items 785 1,213 1,032 1,194 1,302 Cash profit 3,588 4,527 6,354 7,519 8,705 - Incr./(decr.) in WC 830 1,150 2,110 1,660 1,710 Operating cash-flow 2,757 3,377 4,245 5,859 6,995 - Capex 3,163 2,847 3,500 2,500 2,500 Free cash-flow (406) ,359 4,495 - Dividend ,110 1,299 + Equity raised Debt raised 736 (82) 0 (1,700) (2,000) - Investments 20 (209) Misc. items (106) (92) Net cash-flow (11) 454 (190) 549 1,196 + Op. cash & bank bal Cl. cash & bank bal ,102 Fig 4 Ratio `832 P/E (x) P/B (x) EV/EBITDA (x) RoE (%) RoCE (%) Dividend yield (%) Dividend payout (%) Asset turnover (x) Net Debt/Equity (x) Net debt/ebitda (x) Net debt/op. CF (x) Interest coverage (x) P/CEPS (x) EV/ sales (x) M-cap/sales (x) Fig 5 PE band Fig 6 Revenue break-up (FY14e) x x Export APIs 20% Domestic Form 29% 400 8x x Export Form 46% Domestic APIs 5% Jun-06 Nov-06 Apr-07 Sep-07 Feb-08 Jul-08 Dec-08 May-09 Oct-09 Mar-10 Aug-10 Jan-11 Jun-11 Nov-11 Apr-12 Sep-12 Feb-13 Jul-13 Dec-13 Source: Bloomberg, Anand Rathi Research Anand Rathi Research 24

27 India I Equities Healthcare Result Preview 7 April 2014 Fortis Healthcare Margin pressure, balance sheet improves; Hold Rating: Hold Target Price: `107 Share Price: `98 Key takeaways Consolidated revenues to have declined. We expect Fortis Healthcare s consolidated revenues to decline 43% yoy, due to the divestment of Dental Corp. (Australia), Quality Healthcare (Hong Kong) and Hoan My (Vietnam). Excl. the Australian, Hong Kong and Vietnam subsidiaries, we expect 14% yoy revenue growth, driven by strong growth in its India-hospitals business and steadily rising revenue from other international subsidiaries. The EBITDA margin is likely to drop to 6%, down 102bps yoy, due to the payment of service fees and lease rentals to the Religare Health Trust (owner of its hospitals infrastructure). We expect net profit of `30m, against a `1.16bn adj. net loss in 4QFY13, fuelled by lower interest costs. International subsidiaries divested. The company has already divested itself of its international subsidiaries in Australia, Hong Kong and Vietnam. It is now left with only its Singapore subsidiary, which is also expected to be divested soon, considering the management s re-focus on the home market in hospitals and diagnostic labs. We view this as a positive move as India is a high-growth market and the company s balance sheet has been de-leveraged by these divestments. Strong showing to continue in hospitals. We estimate hospitals to grow 15.5% yoy, led by more operational beds, greater occupancy and the steady rise in average revenue per operating bed. Super Religare Laboratories is expected ` to grow at a strong 14% yoy, led by the rise in diagnostic centres and the greater number of patients. Our take. We approve the management s re-focus on India healthcare, which we see as a positive. The stock trades at 17.4x FY14e and 15x FY15e EV/EBITDA. We maintain a Hold (recommendation) on it, with a price target of `107. Risks. A slower ramp-up in new hospitals and a longer gestation period. Key data FORH IN / FOHE.BO 52-week high / low `115 / `84 Sensex / Nifty / m average volume US$0.5m Market cap `46bn / US$0.73bn Shares outstanding 465 Shareholding pattern (%) Dec 13 Sep 13 Jun 13 Promoters of which, Pledged Free Float Foreign Institutions Domestic Institutions Public Financials (YE Mar) FY14e FY15e Sales (`m) 46,072 41,772 Net profit (`m) (325) 831 EPS (`) (0.7) 1.8 Growth (%) NA NA PE (x) (139.9) 54.8 PBV (x) RoE (%) (0.8) 1.7 RoCE (%) Dividend yield (%) Net gearing (%) Quarterly results (YE Mar) 4QFY13 4QFY14e % yoy FY13 FY14e % yoy Sales (`m) 16,103 9,156 (43.1) 60,516 46,072 (23.9) EBITDA (`m) 1, (51.4) 6,787 3,172 (53.3) EBITDA margin (%) bps bps Interest (`m) 1, (66.0) 6,340 2,819 (55.5) Depreciation (`m) 1, (43.7) 3,706 2,433 (34.4) Other income(`m) ,570 1,570 - PBT (`m) (856) 37 (104.4) 7,957 (510) (106.4) Tax (`m) (96.6) 2,313 (102) (104.4) Tax rate (%) (25.4) bps bps PAT (`m) (1,159) 30 NA (1,842) (325) NA Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

28 7 April 2014 Fortis Healthcare Margin pressure, balance sheet improves; Hold Quick Glance Financials and Valuations Fig 1 Income statement (`m) Net revenues 29,840 60,516 46,072 41,772 47,773 Revenue growth (%) (23.9) (9.3) Op. expenses 25,807 53,729 42,900 38,113 43,266 EBIDTA 4,033 6,787 3,172 3,659 4,507 EBITDA margin (%) Interest expenses 2,970 6,340 2,819 2,129 1,949 - Depreciation 1,822 3,706 2,433 2,165 2,205 + Other income 1,773 1,570 1,570 1,570 1,570 - Tax 408 2,313 (102) Effective tax rate (%) Reported PAT 669 5,644 (408) 748 1,539 +/- Extraordinary items 63 9, /- Minority interest (27) Adjusted PAT 683 (1,842) (325) 831 1,621 Adj. FDEPS (`/share) 1.6 (4.0) (0.7) Adj. FDEPS growth (%) (36.0) NA NA NA NA Fig 2 Balance sheet (`m) Share capital 4,095 4,095 4,655 4,655 4,655 Reserves & surplus 28,444 33,013 43,086 43,917 46,369 Net worth 32,539 37,109 47,741 48,572 51,024 Minority interest 8,308 16,912 9,830 9,747 9,665 Total debt 70,474 64,650 24,650 22,650 20,650 Def. tax liab. (net) (416) Capital employed 110, ,932 82,482 81,230 81,600 Net fixed assets 97,488 95,179 49,746 50,081 50,376 Investments 2,412 11,874 11,874 11,874 11,874 - of which, Liquid 64 3,893 3,893 3,893 3,893 Net working capital 6,856 6,762 6,006 6,010 6,228 Cash and bank balance 4,149 5,117 14,856 13,265 13,122 Capital deployed 110, ,932 82,482 81,230 81,600 Net debt 66,325 59,533 9,794 9,385 7,529 WC days (13.8) (13.8) (14.0) (14.8) (12.8) Book value (`/sh) Fig 3 Cash-flow statement (`m) PAT 669 5,644 (408) 748 1,539 + Non-cash items 1,822 3,706 2,433 2,165 2,205 Cash profit 2,491 9,350 2,025 2,913 3,744 - Incr./(decr.) in WC (6,782) (94) (756) Operating cash-flow 9,274 9,444 2,781 2,909 3,526 - Capex 71,491 1,396 2,500 2,500 2,500 Free cash-flow (62,217) 8, ,026 - Dividend Equity raised 0 0 5, Debt raised 59,561 (5,824) (40,000) (2,000) (2,000) - Investments 1,429 9, Misc. items 6,602 8,207 44, Net cash-flow 2, ,739 (1,591) (143) + Op. cash & bank bal. 1,633 4,149 5,117 14,856 13,265 Cl. cash & bank bal. 4,150 5,117 14,856 13,265 13,122 Fig 4 Ratio `98 P/E (x) 58.6 (21.7) (139.9) P/B (x) EV/EBITDA (x) RoE (%) 2.1 (5.3) (0.8) RoCE (%) Dividend yield (%) Dividend payout (%) Asset turnover (x) Net Debt/Equity (x) Net debt/ebitda (x) Net debt/op. CF (x) Interest coverage (x) P/CEPS (x) EV/ sales (x) M-cap/sales (x) Fig 5 EV/EBITDA band Fig 6 Revenue break-up (FY14e) 250, ,000 International 25% 150, ,000 50,000 30x 25x 20x 15x SRL 14% India Hospitals 61% 0 May-07 Oct-07 Mar-08 Aug-08 Jan-09 Jun-09 Nov-09 Apr-10 Sep-10 Feb-11 07/26/11 Jan-12 Jun-12 Nov-12 May-13 Oct-13 Source: Bloomberg, Anand Rathi Research Anand Rathi Research 26

29 India I Equities Healthcare Result Preview 7 April 2014 Pfizer India Pricing policy to hurt growth; Hold Key takeaways Flat revenues, PAT constrained. We expect Pfizer India s 4QFY14 revenue growth to be flat yoy due to slow growth in its domestic brand-named formulations. Lower growth would be primarily because of the new pricing policy and continued pressure on its key high-value brands. The EBITDA margin is expected to be flattish, at 19.5%, due to flat revenues. We expect its adjusted PAT to fall 22.8% yoy, due to subdued margins, lower other income and higher tax rates. Restrained revenue growth. We expect the pharmaceutical segment revenue to grow just 7% yoy due to the impact of the implementation of the new drug pricing policy, a general slowdown in the domestic pharma sector and continued pressure on its key high-value products like Corex and Becolues. Clinical services and other income segment would be largely flat because of the high 4QFY13 base. Cash payout to improve return ratios. To reward shareholders a one-time special dividend of `360 a share has recently been paid. This is about 25% of the present market price. It would reduce the other income component, but return ratios would increase significantly to more than 30%. We view this as a positive move. Our take. We expect 8.6% and 5.6% CAGRs over FY13-16 in revenue and adjusted PAT respectively. The EBITDA margin is expected to be flat, to 19.5%, on account of the low proportion of domestic formulations revenue. The ` parent company had recently announced a merger with Wyeth, which would mean the amalgamation of Pfizer India and Wyeth India. The merged entity would have a better product range and a higher rank. At present, the stock traded at 17.8x FY14e and 20.9x FY15e earnings. We maintain a Hold on it, with a price target of `1,178, based on 18x Sep 15e earnings. Risks. Implementation of the proposed pharma pricing policy in India. Rating: Hold Target Price: `1,178 Share Price: `1,289 Key data PFIZ IN / PFIZ.BO 52-week high / low `1779 / `985 Sensex / Nifty / m average volume US$0.1m Market cap `38bn / US$0.62bn Shares outstanding 29.8m Shareholding pattern (%) Dec 13 Sep 13 Jun 13 Promoters of which, Pledged Free Float Foreign Institutions Domestic Institutions Public Financials (YE Mar) FY14e FY15e Sales (`m) 11,286 12,310 Net profit (`m) 2,162 1,842 EPS (`) Growth (%) 23.2 (14.8) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%) (51.1) (60.8) Quarterly results (YE Mar) 4QFY13 4QFY14e % yoy FY13 FY14e % yoy Sales (`m) 2,817 2, ,501 11, EBITDA (`m) ,871 2, EBITDA margin (%) bps bps Interest (`m) (1) - (100.0) 2 - (100.0) Depreciation (`m) (9.4) Other income (`m) (54.9) 1, (6.3) PBT (`m) (19.4) 1,791 2, Tax (`m) (11.9) 1,954 1,114 (43.0) Tax rate (%) bps bps PAT (`m) (22.8) 1,754 2, Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

30 7 April 2014 Pfizer India Pricing policy to hurt growth; Hold Quick Glance Financials and Valuations Fig 1 Income statement (`m) Net revenues 10,924 10,501 11,286 12,310 13,435 Revenue growth (%) 17.1 (3.9) Op. expenses 8,966 8,630 8,916 9,725 10,613 EBIDTA 1,958 1,871 2,370 2,585 2,821 EBITDA margin (%) Interest expenses Depreciation Other income 936 1, Tax 929 1,906 1, ,063 Effective tax rate (%) Reported PAT 1,846 5,032 2,162 1,842 2,063 +/- Extraordinary items (4) /- Minority interest Adjusted PAT 1,849 1,754 2,162 1,842 2,063 Adj. FDEPS (`/share) Adj. FDEPS growth (%) 8.0 (5.1) Fig 2 Balance sheet (`m) Share capital Reserves & surplus 12,749 16,646 5,124 6,538 8,122 Net worth 13,047 16,944 5,423 6,837 8,420 Minority interest Total debt Def. tax liab. (net) (371) (399) (399) (399) (399) Capital employed 12,676 16,545 5,024 6,438 8,022 Net fixed assets Investments of which, Liquid Net working capital 3,216 1,497 1,512 1,519 1,527 Cash and bank balance 8,663 14,329 2,773 4,160 5,716 Capital deployed 12,676 16,546 5,024 6,438 8,022 Net debt (8663) (14329) (2773) (4160) (5716) WC days Book value (`/sh) Fig 3 Cash-flow statement (`m) PAT 1,831 4,983 2,162 1,842 2,063 + Non-cash items Cash profit 1,911 5,015 2,242 1,923 2,144 - Incr./(decr.) in WC (1,775) (1,864) Operating cash-flow 3,685 6,879 2,227 1,915 2,136 - Capex (519) Free cash-flow 4,205 6,875 2,127 1,815 2,036 - Dividend , Equity raised Debt raised Investments 1 (1) Misc. items Net cash-flow 2,878 5,667 (11,557) 1,387 1,556 + Op. cash & bank bal. 5,785 8,663 14,329 2,773 4,160 Cl. cash & bank bal. 8,663 14,329 2,773 4,160 5,716 Fig 4 Ratio `1,289 P/E (x) P/B (x) EV/EBITDA (x) RoE (%) RoCE (%) Dividend yield (%) Dividend payout (%) Asset turnover (x) Net Debt/Equity (x) (0.7) (0.8) (0.5) (0.6) (0.7) Net debt/ebitda (x) (4.4) (7.7) (1.2) (1.6) (2.0) Net debt/op. CF (x) (2.4) (2.1) (1.2) (2.2) (2.7) Interest coverage (x) NA NA NA P/CEPS (x) EV/ sales (x) M-cap/sales (x) Fig 5 PE band Fig 6 Revenue break-up (FY14e) 1,600 1,400 1,200 PFIZ 20x 16x Clinicals services and other 12% 1, x Pharmaceuticals 88% 200 Jul-05 Nov-05 Mar-06 Jul-06 Nov-06 Mar-07 Jul-07 Nov-07 Mar-08 Jul-08 Nov-08 Mar-09 Jul-09 Nov-09 Mar-10 Jul-10 Nov-10 Mar-11 Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Mar-13 Jul-13 Nov-13 Source: Bloomberg, Anand Rathi Research Anand Rathi Research 28

31 India I Equities Healthcare Result Preview 7 April 2014 Unichem Laboratories New pricing policy to eat into domestic growth; Buy Key takeaways Modest performance expected. We expect modest 8.1% yoy revenue growth for Unichem Laboratories, chiefly due to the slowdown in its domestic business and the potential impact of the new drug pricing policy. Further, the high base of export formulations would have eaten into growth. We expect the EBITDA margin to have improved 105bps yoy, to 18.5%, considering better field-force productivity and more sales in the US. We expect adjusted PAT to have grown just 4.5% yoy, less than revenue, due to a higher effective tax rate and a high depreciation charge. APIs, domestic formulations key growth drivers. We expect domestic formulations to have grown 12% yoy, higher than the 9MFY14 growth rate, led by better field-force productivity and no more trade-related issues. We expect the previous year s high growth in export formulations to have a bearing on FY14 growth and expect it to be flat in 4QFY14. The export API business is also expected to come in line with 4QFY13. However, we expect recovery in revenue growth to start from 1QFY15, led by the domestic formulations business and US generics. Better financials. We expect revenue and adjusted net profit over FY13-16 to record respectively 13.1% and 20.7% adjusted CAGRs, led by recovery in domestic formulations and strong growth in exports from capacity addition. The EBITDA margin is expected to improve 260bps over FY13-16, chiefly due to recovery in the high-margin domestic formulations and the expected turnaround of Niche Generics. This subsidiary would now start contributing to ` revenue growth. Our take. We are positive on the long-term outlook, considering its strong product range for the home market and the expected turnaround of Niche Generics. The stock quotes at 14.7x FY14e and 12.1x FY15e. We maintain a Buy on it, with a target of `242 based on 12x Sep 15e earnings. Risks. A more than-expected impact of the new drug pricing policy, currency fluctuations and regulatory hurdles. Rating: Buy Target Price: `242 Share Price: `221 Key data UL IN / UNLB.BO 52-week high / low `237/ `138 Sensex / Nifty / m average volume US$0.1m Market cap `20bn / US$ 0.3 bn Shares outstanding 90.4m Shareholding pattern (%) Dec 13 Sep 13 Jun 13 Promoters of which, Pledged Free Float Foreign Institutions Domestic Institutions Public Financials (YE Mar) FY14e FY15e Sales (`m) 12,086 13,744 Net profit (`m) 1,360 1,657 EPS (`) Growth (%) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%) (17.0) (17.6) Quarterly results (YE Mar) 4QFY13 4QFY14e % yoy FY13 FY14e % yoy Sales (`m) 2,435 2, ,808 12, EBITDA (`m) ,743 2, EBITDA margin (%) bps bps Interest (`m) (26.0) Depreciation (`m) Other income(`m) PBT (`m) ,461 2, Tax (`m) Tax rate (%) bps bps PAT (`m) ,131 1, Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

32 7 April 2014 Unichem Laboratories New pricing policy to eat into domestic growth; Buy Quick Glance Financials and Valuations Fig 1 Income statement (`m) Net revenues 8,755 10,808 12,086 13,744 15,650 Revenue growth (%) Op. expenses 7,571 9,065 10,038 11,295 12,723 EBIDTA 1,183 1,743 2,048 2,448 2,927 EBITDA margin (%) Interest expenses Depreciation Other income Tax Effective tax rate (%) Reported PAT 713 1,132 1,672 1,657 1,988 +/- Extraordinary items /- Minority interest Adjusted PAT 712 1,131 1,360 1,657 1,988 Adj. FDEPS (`/share) Adj. FDEPS growth (%) (22.4) Fig 2 Balance sheet (`m) Share capital Reserves & surplus 6,425 7,090 8,175 9,251 10,541 Net worth 6,606 7,271 8,356 9,431 10,722 Minority interest Total debt Def. tax liab. (net) Capital employed 7,449 7,931 9,016 10,092 11,382 Net fixed assets 5,212 5,800 5,432 5,953 6,419 Investments of which, Liquid Net working capital 1,860 1,497 1,787 2,077 2,381 Cash and bank balance ,428 1,664 2,082 Capital deployed 7,449 7,931 9,035 10,082 11,269 Net debt 82 (306) (1,488) (1,724) (2,141) WC days Book value (`/sh) Fig 3 Cash-flow statement (`m) PAT 712 1,131 1,672 1,657 1,988 + Non-cash items Cash profit 1,023 1,520 2,089 2,137 2,522 - Incr./(decr.) in WC (201) (345) Operating cash-flow 1,224 1,865 1,800 1,847 2,218 - Capex 1, ,000 1,000 Free cash-flow , ,218 - Dividend Equity raised Debt raised (49) (188) Investments 0 (57) Misc. items (240) 272 Net cash-flow , Op. cash & bank bal ,428 1,664 Cl. cash & bank bal ,409 1,693 2,184 Fig 4 Ratio `221 P/E (x) P/B (x) EV/EBITDA (x) RoE (%) RoCE (%) Dividend yield (%) Dividend payout (%) Asset turnover (x) Net Debt/Equity (x) 0.0 (0.0) (0.2) (0.2) (0.2) Net debt/ebitda (x) 0.1 (0.2) (0.7) (0.7) (0.7) Net debt/op. CF (x) 0.1 (0.2) (0.8) (0.9) (1.0) Interest coverage (x) P/CEPS (x) EV/ sales (x) M-cap/sales (x) Fig 5 PE band Fig 6 Revenue break-up (FY14e) UL 16x Niche Generics 8% 200 Export APIs 8% x x Export formulations 24% Domestic formulations 58% 0 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Domestic APIs 2% Source: Bloomberg, Anand Rathi Research Anand Rathi Research 30

33 India I Equities Healthcare Result Preview 7 April 2014 Natco Pharma Copaxone launch is the key; Buy Key takeaways Strong revenues, higher PAT. We expect Natco Pharma s 4QFY14 revenue growth to be a strong, 17.3% yoy, led by robust growth in its export formulations and domestic oncology businesses, along with higher other operating income. Its EBITDA margin is expected to improve 153bps yoy, to 22%, led by the better revenue mix. We expect adjusted PAT to grow a sharp 124% yoy on account of the higher margin and a lower effective tax rate. However, PBT growth is expected to be 44% yoy, much lower than PAT growth, due to higher 4QFY13 taxes. Export formulations, key growth driver. We expects its formulation business to register a 24.3% yoy rise in revenue, led by export formulations, which is expected to grow a sharp 64% yoy on account of the low 4QFY13 base and the start of supplies to Venezuela. Approval for Lansoprazole OTC version would help accelerate growth in export formulations. We expect a 5% yoy decline in its API business mainly due to the decline in its export APIs, though its domestic API business is expected to grow 73% yoy on the low base. Better financials. Over FY13-16 we expect CAGRs of 11% in revenue and 17.2% in adjusted net profit, with the EBITDA margin at ~22%. We expect the RoCE to improve from 14% in FY13 to 16.8% in FY16 and the D/E to drop from 0.5x to 0.2x by FY15. We believe that there is a potential margin upside from our estimates considering the improving revenue mix and significantly better margins in 9MFY14. ` Our take. We believe that this event is more of Teva s attempt to delay the generic launch so that more customers could be switched to 40mg Copaxone (thrice a day). In a worst-case scenario, this would have a negative impact of `215 a share. To some extent, this has already been factored in already. The stock quotes at 21x FY15e and 18x FY16e earnings. We maintain a Buy on it with a price target of `858. Risks. Currency fluctuations, regulatory hurdles. Quarterly results (YE Mar) 4QFY13 4QFY14e % yoy FY13 FY14e % yoy Sales (`m) 1,673 1, ,647 7, EBITDA (`m) ,499 1, EBITDA margin (%) bps bps Interest (`m) (11.3) (1.7) Depreciation (`m) Other income(`m) (29.8) PBT (`m) ,023 1, Tax (`m) (41.1) (23.4) Tax rate (%) bps bps PAT (`m) Rating: Buy Target Price: `858 Share Price: `749 Key data NTCPH IN / NATP.BO 52-week high / low `840/ `390 Sensex / Nifty / m average volume US$0.5m Market cap `235bn / US$0.38bn Shares outstanding 31.4m Shareholding pattern (%) Dec 13 Sep 13 Jun 13 Promoters of which, Pledged Free Float Foreign Institutions Domestic Institutions Public Financials (YE Mar) FY14e FY15e Sales (`m) 7,521 8,219 Net profit (`m) 951 1,119 EPS (`) Growth (%) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%) Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

34 7 April 2014 Natco Pharma Copaxone launch is the key; Buy Quick Glance Financials and Valuations Fig 1 Income statement (`m) Net revenues 5,200 6,647 7,521 8,219 8,991 Revenue growth (%) Op. expenses 4,137 5,148 5,867 6,411 7,013 EBIDTA 1,064 1,499 1,655 1,808 1,978 EBITDA margin (%) Interest expenses Depreciation Other income Tax Effective tax rate (%) Reported PAT ,119 1,291 +/- Extraordinary items 61 (116) /- Minority interest (11) (53) Adjusted PAT ,119 1,291 Adj. FDEPS (`/share) Adj. FDEPS growth (%) (2.8) Fig 2 Balance sheet (`m) Share capital Reserves & surplus 4,425 5,029 5,847 6,810 7,921 Net worth 4,736 5,342 6,161 7,124 8,235 Minority interest Total debt 2,586 2,856 2,256 1,756 1,256 Def. tax liab. (net) Capital employed 7,625 8,739 8,958 9,420 10,031 Net fixed assets 4,840 6,886 6,922 7,153 7,375 Investments of which, Liquid Net working capital 1,801 1,712 1,603 1,751 1,915 Cash and bank balance Capital deployed 7,625 8,739 8,958 9,421 10,032 Net debt 2,220 2,729 1,839 1, WC days Book value (`/sh) Fig 3 Cash-flow statement (`m) PAT ,119 1,291 + Non-cash items Cash profit ,215 1,388 1,569 - Incr./(decr.) in WC 443 (89) (108) Operating cash-flow ,323 1,240 1,405 - Capex 1, Free cash-flow (1,006) 683 1, Dividend Equity raised Debt raised (600) (500) (500) - Investments Misc. items (86) 488 Net cash-flow 33 (240) Op. cash & bank bal Cl. cash & bank bal Fig 4 Ratio `749 P/E (x) P/B (x) EV/EBITDA (x) RoE (%) RoCE (%) Dividend yield (%) Dividend payout (%) Asset turnover (x) Net Debt/Equity (x) Net debt/ebitda (x) Net debt/op. CF (x) Interest coverage (x) P/CEPS (x) EV/ sales (x) M-cap/sales (x) Fig 5 PE band Fig 6 Revenue break-up (FY14e) 1, x 13x US retail 13% Other operating inc 7% APIs 33% x Export Form 18% 0 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Domestic Form 29% Source: Bloomberg, Anand Rathi Research Anand Rathi Research 32

35 India I Equities Healthcare Result Preview 7 April 2014 Indoco Remedies Growth momentum to pick up, Buy Key takeaways Strong performance expected. We expect Indoco Remedies 4QFY14 revenues to have grown 18.6% yoy, driven by strong growth in its exports and domestic formulations. The EBITDA margin is expected to be in line with 4QFY13, at 16%, because of greater staff costs. We expect adjusted PAT to have grown 10.4% yoy, less than revenue, due to flattish margins and a higher effective tax rate. We have not factored in any MTM gain/loss because of foreign currency fluctuations. Overall business growth. We expect its India formulations business to have grown at a healthy 14% yoy, driven by better field-force productivity, product launches and the focus on chronic therapies. We estimate strong, 25.3% yoy, growth in revenues from export formulations, largely driven by greater supplies to regulated as well as semi-regulated markets. We expect API revenue to have grown just 7.5% yoy. Supplies to Watson to soon commence. We expect approvals for sterile ophthalmic products in the US to commence from 1QFY15, as more than three years from the first filing have expired. Watson Pharmaceuticals, the partner, will market the product, while profit will be equally shared by Watson and Indoco. We believe that a ramp-up in product launches through Watson would be a game changer for Indoco with strong revenue growth and better margins. We expect FY15 and FY16 revenue of US$16m and US$31m, respectively. Our ` take. We expect CAGRs over FY13-16 in Indoco Remedies revenue and adjusted PAT to come at 21.1% and 34.6% respectively, with the EBITDA margin improving 320bps. The stock trades at 13.6x FY15e and 9.8x FY16e earnings. We maintain a Buy on it, with a price target of `172, based on 12x FY16e earnings. Risks. Currency fluctuations, regulatory hurdles, delay in launch of products under the Watson deal. Rating: Buy Target Price: `172 Share Price: `140 Key data INDR IN / INRM.BO 52-week high / low `162 / `55 Sensex / Nifty 22360/ m average volume US$0.1m Market cap `12.9bn / US20$bn Shares outstanding 92.2m Shareholding pattern (%) Dec 13 Sep 13 Jun 13 Promoters of which, Pledged Free Float Foreign Institutions Domestic Institutions Public Financials (YE Mar) FY14e FY15e Sales (`m) 7,238 9,137 Net profit (`m) EPS (`) Growth (%) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%) Quarterly results (YE Mar) 4QFY13 4QFY14e % yoy FY13 FY14e % yoy Sales (`m) 1,590 1, ,308 7, EBITDA (`m) , EBITDA margin (%) bps bps Interest (`m) (13.6) Depreciation (`m) Other income(`m) PBT (`m) Tax (`m) - 36 NA NA Tax rate (%) bps bps PAT (`m) Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

36 7 April 2014 Indoco Remedies Growth momentum to pick up, Buy Quick Glance Financials and Valuations Fig 1 Income statement (`m) Net revenues 5,688 6,308 7,238 9,137 11,202 Revenue growth (%) Op. expenses 4,842 5,375 6,073 7,579 9,186 EBIDTA ,166 1,558 2,016 EBITDA margin (%) Interest expenses Depreciation Other income Tax Effective tax rate (%) Reported PAT ,323 +/- Extraordinary items 0 (126) /- Minority interest Adjusted PAT ,323 Adj. FDEPS (`/share) Adj. FDEPS growth (%) (9.3) Fig 2 Balance sheet (`m) Share capital Reserves & surplus 3,725 3,957 4,425 5,154 6,170 Net worth 3,848 4,142 4,609 5,339 6,354 Minority interest Total debt 1,142 1,179 1,179 1, Def. tax liab. (net) Capital employed 5,283 5,671 6,138 6,868 7,684 Net fixed assets 3,372 3,592 3,798 3,986 4,158 Investments of which, Liquid Net working capital 1,805 1,936 2,210 2,723 3,289 Cash and bank bal Capital deployed 5,283 5,670 6,138 6,868 7,684 Net debt WC days Book value (`/sh) Fig 3 Cash-flow statement (`m) Year-end: Mar FY12 FY13 FY14e FY14e FY16e PAT ,323 + Non-cash items Cash profit ,263 1,651 - Incr./(decr.) in WC Operating cash-flow ,085 - Capex Free cash-flow (432) Dividend Equity raised 0 + Debt raised (200) - Investments 30 (29) Misc. items (305) (5) (2) Net cash-flow (133) 35 (11) Op. cash & bank bal Cl. cash & bank bal Fig 4 Ratio `140 P/E (x) P/B (x) EV/EBITDA (x) RoE (%) RoCE (%) Dividend yield (%) Dividend payout (%) Asset turnover (x) Net Debt/Equity (x) Net debt/ebitda (x) Net debt/op. CF (x) Interest coverage (x) P/CEPS (x) EV/ sales (x) M-cap/sales (x) Fig 5 PE band Fig 6 Revenue break-up (FY14e) Domestic APIs 3% Export APIs 3% 110 INDR 12x x 4x Export formulations 33% Domestic formulations 61% 10 Apr-05 Nov-05 Jun-06 Jan-07 Aug-07 Mar-08 Oct-08 May-09 Dec-09 Jul-10 Feb-11 Sep-11 Apr-12 Nov-12 Jun-13 Jan-14 Source: Bloomberg, Anand Rathi Research Anand Rathi Research 34

37 Appendix Analyst Certification The views expressed in this Research Report accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. The research analysts are bound by stringent internal regulations and also legal and statutory requirements of the Securities and Exchange Board of India (hereinafter SEBI ) and the analysts compensation are completely delinked from all the other companies and/or entities of Anand Rathi, and have no bearing whatsoever on any recommendation that they have given in the Research Report. The research analysts, strategists, or research associates principally responsible for the preparation of Anand Rathi Research have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking revenues. Anand Rathi Ratings Definitions Analysts ratings and the corresponding expected returns take into account our definitions of Large Caps (>US$1bn) and Mid/Small Caps (<US$1bn) as described in the Ratings Table below: Ratings Guide Buy Hold Sell Large Caps (>US$1bn) >15% 5-15% <5% Mid/Small Caps (<US$1bn) >25% 5-25% <5% Anand Rathi Research Ratings Distribution (as of 4 March 2014) Buy Hold Sell Anand Rathi Research stock coverage (185) 64% 27% 9% % who are investment banking clients 4% 0% 0% Other Disclosures This report has been issued by ARSSBL which is a SEBI regulated entity, and which is in full compliance with all rules and regulations as are applicable to its functioning and governance. The investors should note that ARSSBL is one of the companies comprising within ANAND RATHI group, and ANAND RATHI as a group consists of various companies which may include (but is not limited to) its subsidiaries, its affiliates, its group companies who may hold positions, views, stakes and may service the companies covered in this report independent of ARSSBL. Investors are cautioned to be aware that there could arise a potential conflict of interest in the views held by ARSSBL and other companies of Anand Rathi who maybe affiliated, connected or catering to the companies mentioned in the Research Report; even though, ARSSBL and Anand Rathi are fully complaint with all procedural and operational regulatory requirements. Thus, investors should not use this as a sole basis for making their investment decision and should consider the recommendations mentioned in the Research Report bearing in mind the aforementioned. 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38 India I Equities Autos Result Preview 710 April 2014 India Autos Near-term demand weakness; ahead, tailwinds likely Sensex: Nifty: 6694 Key takeaways Volumes subdued. Auto volumes in most segments have been under pressure in FY14, after an average performance in FY13. Two-wheelers were the better performing segment due to the lower base as well as sustained scooter demand. The lowered excise duty till 30 th June would lead to some pre-buying, but is likely to lead to a dip in subsequent months. Demand recovery in most segments is likely only in 2HFY15. The key for the sector is a fundamental recovery in the economy, boosting industrial growth and consumer incomes. Margin trend. A period of heavy discounting and a slump in demand have led the top 2 CV companies to record low single-digit EBITDA margins in FY14 ytd. But for Tata Motors, the trigger is the sustained sales growth and robust EBITDA margin at JLR, rather than losses at its India operations. The top-two two-wheeler companies are faring much better, with Bajaj Auto s performance boosted by higher export realizations. Of the PV companies, M&M has been able to compensate for the slowdown in UV sales with a robust performance in the lower-realization but higher-profitability tractor segment. Maruti Suzuki has seen a margin recovery due to a favourable rate in imports and its operating leverage. For the auto sector, excl. CVs, margins are at higher than the FY13 level. Our take. Sector valuations normally suffer during periods of weak demand. However, the current valuations are at a significant premium to past averages and appear to ignore the weak underlying demand (except in Tata Motors, where domestic demand is not a factor). Maruti Suzuki and Ashok Leyland are quoting at significant premiums to fair valuations and we recommend a Sell. Tata Motors is our top pick on the sustained good performance at JLR, and we are positive on two-wheeler companies, Bajaj Auto and Hero MotoCorp. We also have a Buy rating on M&M. Among auto-components companies, we like Motherson Sumi, Wabco India and Suprajit Engineering. India Autos: Mar 14 quarter, forecasts Revenues EBITDA PAT Company `m yoy chg (%) Margin (%) yoy chg (bps) `m yoy chg (%) Ashok Leyland 28,965 (22.3) (1.6) (691) (1,793) (716.1) Bajaj Auto 48, , Eicher Motors* 18, , Hero MotoCorp 65, ,638 (1.8) Mahindra & Mahindra 101,024 (3.7) ,995 (1.3) Maruti Suzuki 125,709 (5.5) 12.8 (183) 9,527 (20.7) Tata Motors 690, , TVS Motors 21, * Estimates for 1QCY13 Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

39 7 April 2014 India Autos Near-term demand weakness; ahead, tailwinds likely Fig 1 Snapshot: Quarterly result estimates Mar 14 (`m) Sales EBITDA OPM PAT Company Name Mar'14 YoY % QoQ % Mar'14 YoY % QoQ % Mar'14 Dec'13 Mar'13 Mar'14 YoY % QoQ % Ashok Leyland 28,965 (22.3) 48.3 (460) (123.2) (52.5) (1.6) (5.0) 5.3 (1,793) (716.1) (28.4) Bajaj Auto 48, (5.7) 9, (7.8) , (7.3) Eicher Motors 18, , , Hero MotoCorp 65, (4.0) 9, ,638 (1.8) 7.5 Mahindra & Mahindra 101,024 (3.7) (4.3) 12,124 (3.4) (12.3) ,995 (1.3) (14.4) Maruti Suzuki 125,709 (5.5) ,127 (17.3) ,527 (20.7) 39.9 Tata Motors 690, , (0.4) , (5.2) TVS Motors 21, , VST Tillers & Tractors 1, (1.9) Amara Raja Batteries 8, , (10.6) (11.4) Apollo Tyres 33, (3.1) 4, (19.3) , (39.6) Balkrishna Industries 9, , (3.5) , (11.5) Bharat Forge 8, , (0.4) (4.7) Ceat 14, , Exide Industries 14,668 (4.7) , ,312 (9.8) 60.0 Gabriel India 3, NRB Bearings 1, (0.6) Phillips Carbon Black 5, (70) (242.4) (54.5) Motherson Sumi Sys 83, , , Munjal Showa 4, Setco Auto 1,025 (1.7) (0.9) (8.8) 37.2 SKF India 5, (1.5) (2.5) (5.4) Suprajit Engineering 1, (6.6) (9.8) Swaraj Engines 1, (16.1) (13.8) (11.8) Wabco India 2, (3.2) (6.8) 29.2 * Estimates for 4QCY13 Anand Rathi Research 2

40 India I Equities Autos Result Preview Change in Estimates Target Reco 7 April 2014 Tata Motors India weak, JLR strong; Buy Key takeaways 4Q results likely to be good. For 4QFY14, we expect Tata Motors consolidated profits to register 19.1% yoy growth, chiefly following the good performance at JLR. The Indian operations are, however, expected to continue to be a drag due to the slump in CV sales and lower PV sales. We expect consolidated sales to grow 23.2% yoy to `690.1bn, with a 15.2% EBITDA margin and 19.1% yoy profit growth, to `46.7bn. Standalone numbers to disappoint. Following a sharp volume drop in 4QFY14, standalone profitability would continue to be under pressure. However, M&HCV sales are likely to have bottomed out in 3QFY14. Subsequent developments indicate incremental tailwinds for the segment. We expect EBITDA margin at -1.2% and losses at `5.2bn. JLR to be the key growth driver. JLR s 4Q volumes are estimated to have grown 7.3%. After a good run in 9MFY14, Jaguar volumes are likely to plateau in 4Q. Backed by decent volume growth and sustained robust EBITDA margins, we expect JLR to report 12.7% yoy revenue growth, to 5.7bn, while our EBITDA margin expectation is 17.4% (up 50bps yoy). The profit growth is estimated at 4.9% to 520m (net profit margin of 9.1%, which is lower 70bps yoy). In 4QFY13, JLR suffered a forex loss of GBP118m, due to which the reported profit is expected to grow at a higher rate of 37.6% yoy. Our ` take. The cyclical M&H CV slowdown would continue to squeeze the Indian operations. Better performance in standalone operations is likely only in 2HFY15. For JLR, good volume growth and continued demand are the clearest positives at present, with the margin expected to widen ~200bps in FY14. At the current price, the stock trades at a PE of 7.4x FY15e consolidated EPS. We maintain Buy with a target of `430. Risks. Dip in Chinese demand, negative surprises at JLR, sustained volume decline in India. Quarterly results (YE Mar) 4QFY13 4QFY14e % yoy 9MFY13 9MFY14 % yoy Sales (`m) 560, , ,328,160 1,675, EBITDA (`m) 83, , , , EBITDA margin (%) bps bps Interest (`m) 9,670 10, ,863 30, Depreciation (`m) 28,670 37, ,239 97, Other income (`m) 1,775 2, ,341 5, PBT (`m) 46,943 59, , , Tax (`m) 8,827 12, ,883 36, Tax rate (%) bps bps Adjusted Profit (`m) 39,240 46, , , Rating: Buy Target Price: `430 Share Price: `412 Key data TTMT IN / TAMO.BO 52-week high / low `420 / `252 Sensex / Nifty / m average volume US$54.1m Market cap `1,115bn / US$18.6bn Shares outstanding 3219m Shareholding pattern (%) Dec 13 Sep 13 Jun 13 Promoters of which, Pledged Free Float Foreign Institutions Domestic Institutions Public Financials (YE Mar) FY14e FY15e Sales (`m) 2,365,501 2,813,815 Net profit (`m) 153, ,267 EPS (`) Growth (%) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%) Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

41 7 April 2014 Tata Motors India weak, JLR strong; Buy Quick Glance Financials and Valuations Fig 1 Income statement (`m) Net revenues 1,656,545 1,888,176 2,365,501 2,813,815 3,230,839 Revenue growth (%) Op. expenses 1,419,540 1,622,487 1,994,379 2,367,889 2,716,142 EBIDTA 237, , , , ,697 EBITDA margin (%) Interest expenses 29,822 35,533 40,863 40,455 39,443 - Depreciation 70,146 95, , , ,412 + Other income 6,618 8,115 7,791 7,985 8,385 - Extraordinary items -9,621 6,027 5, Tax 17,536 37,710 48,910 55,639 61,596 Effective tax rate (%) Reported Profit 135,165 98, , , ,481 Adjusted Profit 125, , , , ,481 Adj. Profit growth (%) Adj. FDEPS (`/share) Adj. FDEPS growth (%) Fig 2 Balance sheet (`m) Share capital 6,348 6,381 6,438 6,438 6,438 Reserves & surplus 325, , , , ,500 Net worth 331, , , , ,937 Total debt 387, , , , ,223 Def. tax liab. (net) -25,186-20,390-20,390-20,390-20,390 Capital employed 693, , ,724 1,165,991 1,398,771 Net fixed assets 603, , ,105 1,136,168 1,275,239 Investments 89,177 90,577 90, , ,577 Net working capital -181, , , , ,362 Cash and bank balance 182, , , , ,315 Capital deployed 693, , ,724 1,165,991 1,398,771 No. of shares (m) 3,174 3,190 3,219 3,219 3,219 Net debt 204, , , , ,907 Net debt / Equity WC turn days Book value (`/sh) Fig 3 Cash-flow statement (`m) Reported Profit 135,165 98, , , ,481 + Depreciation 56,254 75, , , ,928 Cash profit 191, , , , ,409 - Incr./(decr.) in WC -86,110-63,091-20,986-25,839-30,179 Operating cash-flow 277, , , , ,588 - Capex 228, , , , ,000 Free cash-flow 49,476 9,306 3,202-23, ,588 - Dividend 12,807 6, ,697 + Equity raised Debt raised 83,419 50,182 20,000 20,000 20,000 - Investments 63,735 1, ,000 75,000 - Misc. items -11,961 22, ,005 Net cash-flow 68,285 28,745 23,259-53,957 48,886 + Op. cash & bank bal. 114, , , , ,429 Cl. cash & bank bal. 182, , , , ,315 Fig 4 Ratio `412 P/E (x) P/B (x) EV/EBITDA (x) RoE (%) RoCE (%) Dividend yield (%) Dividend payout (%) Debt to equity (%) Core P/E (x) Cash P/E EV/sales Inventory days Receivables days Payables days Asset Turnover Fig 5 PE band Fig 6 JLR Product Mix Tata Motors 10.0x 8.5x 7.0x 45,000 40,000 35,000 30,000 25, x 20, x 15,000 10, , Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jaguar Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Land Rover Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Source: Bloomberg, Anand Rathi Research Anand Rathi Research 4

42 India I Equities Autos Result Preview Change in Estimates Target Reco 7 April 2014 Mahindra & Mahindra High base catches up; Buy Key takeaways Tractors the growth driver. After a robust performance in FY13, Mahindra & Mahindra s (M&M) automotive division volumes have been constrained in FY14 (9.5% lower yoy). This was, however, more than made up for by robust tractor volumes; in 9MFY14, these were prolific (growing 21% yoy), while in 4QFY14 they were decent at 11.5% yoy. During 4Q, in the automotive segments, pick-up sales were up 1.3% yoy, UVs were lower ~14.8% yoy, and three-wheelers were up 3.2% yoy. M&M s overall volumes in 4QFY14 dipped marginally, by 3.1% yoy. 4QFY14 to face a high base. For 4Q, on lower volumes, we expect 3.7% yoy income dip at `101bn and 3.4% EBITDA decline to `12.1bn. Our EBITDA margin expectation is 12% (flat yoy, lower 110bps qoq). The share of tractors in product mix was lower qoq which could result in lower margins. We expect the quarter s adjusted profit, at `8bn, to be lower 1.3% yoy. FES to drive EBIT margins. We expect 9.2% EBIT margin for the automotive division (60bps lower yoy, 30bps lower qoq) and 16.5% for the farm-equipment segment (50bps higher yoy, 110bps lower qoq). EBIT per tractor is expected to be 1.2% higher yoy, while EBIT per vehicle in the automotive division is expected to be 6.6% lower yoy. Our take. UVs, the growth driver in FY13, have been registered a lower growth rate in FY14, while pickups have maintained a decent pace. However, from ` FY15, with a lower base, scope exists for volume growth ahead. Tractors have recorded a strong recovery in 1Q, with a good trajectory in 2Q and 3Q. For the segment, 4Q should be a bit subdued. Unseasonal rain would also have a near-term impact on tractor demand. We expect 10% volume growth in tractors in FY15. We maintain Buy. Risks. Downside: Delay in rural demand recovery, keener competition, diesel price hike, negatives on the merger of the truck business. Quarterly results (YE Mar) 4QFY13 4QFY14e % yoy 9MFY13 9MFY14 % yoy Sales (`m) 104, , , , EBITDA (`m) 12,547 12, ,396 38, EBITDA margin (%) bps bps Interest (`m) ,401 1, Depreciation (`m) 1,986 2, ,122 5, Other income (`m) ,570 6, PBT (`m) 12,028 10, ,443 36, Tax (`m) 3,136 2, ,807 8, Tax rate (%) bps bps Adjusted Profit (`m) 8,100 7, ,636 28, Rating: Buy Target Price: `1,100 Share Price: `1,006 Key data MM IN / MAHM.BO 52-week high / low `1027 / `742 Sensex / Nifty / m average volume US$18.6m Market cap `528.49bn / US$8.52bn Shares outstanding 589m Shareholding pattern (%) Dec 13 Sep 13 Jun 13 Promoters of which, Pledged Free Float Foreign Institutions Domestic Institutions Public Estimates revision (%) FY14e FY15e FY16e Sales EBITDA EPS Target PE multiple (x) SOTP Financials (YE Mar) FY14e FY15e Sales (`m) 396, ,874 Net profit (`m) 36,610 41,661 EPS (`) Cons. EPS (`) PE (x) Cons PE (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%) Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

43 7 April 2014 Mahindra & Mahindra High base catches up; Buy Quick Glance Financials and Valuations Fig 1 Income statement (`m) Net revenues 318, , , , ,109 Revenue growth (%) Op. expenses 280, , , , ,853 EBIDTA 37,629 46,943 50,271 57,156 63,256 EBITDA margin (%) Interest expenses 1,628 1,912 2,355 2,393 2,393 - Depreciation 5,761 7,108 7,805 9,085 10,405 + Other income 4,658 5,492 7,129 8,081 9,165 - Extraordinary items -2,647-1, Tax 8,755 10,943 10,629 12,096 13,415 Effective tax rate (%) Reported Profit 28,789 33,528 36,610 41,661 46,205 Adjusted Profit 26,169 32,578 36,610 41,661 46,205 Adj. Profit growth (%) Adj. FDEPS (`/share) Adj. FDEPS growth (%) Fig 2 Balance sheet (`m) Share capital 2,945 2,952 2,952 2,952 2,952 Reserves & surplus 118, , , , ,295 Net worth 121, , , , ,246 Total debt 35,808 34,886 39,886 39,886 39,886 Def. tax liab. (net) 4,607 5,203 7,203 7,203 7,203 Capital employed 162, , , , ,336 Net fixed assets 50,808 58,213 65,409 73,324 78,920 Investments 103, , , , ,335 Net working capital -3,671-7,094 6,417 7,149 8,014 Cash and bank balance 11,884 17,814 20,945 28,489 37,068 Capital deployed 162, , , , ,336 No. of shares (m) Net debt -79, , , , ,516 Net debt / Equity WC turn days Book value (`/sh) Fig 3 Cash-flow statement (`m) Reported Profit 28,789 33,528 36,610 41,661 46,205 + Depreciation 5,761 7,108 7,805 9,085 10,405 Cash profit 34,550 40,636 44,415 50,746 56,610 - Incr./(decr.) in WC 909-3,424 13, Operating cash-flow 33,641 44,060 30,903 50,014 55,745 - Capex 18,881 12,362 15,000 17,000 16,000 Free cash-flow 14,760 31,698 15,903 33,014 39,745 - Dividend 7,675 7,982 8,596 9,210 9,824 + Equity raised Debt raised 12, , Investments 13,848 15,230 10,000 15,000 20,000 - Misc. items 104 1, ,260 1,343 Net cash-flow 5,738 5,929 3,131 7,544 8,578 + Op. cash & bank bal. 6,146 11,884 17,814 20,945 28,489 Cl. cash & bank bal. 11,885 17,814 20,945 28,489 37,068 Fig 4 Ratio `1,006 Consolidated P/E (x) P/B (x) EV/EBITDA (x) RoE (%) RoCE (%) Dividend yield (%) Dividend payout (%) Debt to equity (%) Standalone P/E (x) Cash P/E EV/sales Inventory days Receivables days Payables days Asset Turnover Fig 5 PE band Fig 6 Product mix 1, ,000 1,200 1, x 16.0x 13.5x 11.0x 8.5x 200, , , x 50, Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 Automotive 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 Tractors 1QFY14 2QFY14 3QFY14 Source: Bloomberg, Anand Rathi Research Anand Rathi Research 6

44 India I Equities Autos Result Preview Change in Estimates Target Reco 7 April 2014 Bajaj Auto Volumes to look up; Buy Key takeaways Weak demand s past. In 4QFY14, sales of Bajaj Auto s motorcycles remained weak yoy on a depressed demand scenario. During the quarter, its total sales were down 4.6% yoy; motorcycles declined 4% and three wheelers 9.1%, yoy. We expect stability in volumes hereon, with the worst part of volume decline likely to be over. We expect better exports in CY14, along with arresting of the slide in market share. Stable EBITDA margin. We expect 2% growth in income, to `48.4bn, but 14.6% yoy improvement in EBITDA to `9.6bn. Our EBITDA margin expectation is 19.8% (220bps higher yoy, 50bps lower qoq). We expect EBITDA per vehicle to grow 20.1% yoy, but decline 2.1% qoq. The contribution per vehicle is expected to be higher 17.8% yoy. Our tax-rate expectation is 31.2%, which would be 530bps higher yoy. We also expect non-operating income to be lower 8.7% yoy. This would lead to a lower 1.4% yoy growth in the adjusted profit, to `9.2bn, with 16% net profit margin (lower 30bps qoq and 10bps yoy). The adjusted profit per vehicle is expected to be 6.3% higher yoy. Our take. Demand outlook for 1QFY15 is decent, supported by lower excise duty from Mar-Jun 14. The recent showing indicates a persistent market-share loss in motorcycles. The new launch should to some extent address this. We believe the worst has now been factored into estimates and the stock price. M-o-m, the company has recovered from the Dec 13 lows, as reflected in the Jan and Feb 14 figures. ` Sustained better export realizations yoy, higher share of exports in the product mix and recovery in three-wheeler sales are key positives. We recommend Buy. At our price target, the stock would quote at PE of 16.4x FY15e (at the CMP, it trades at 14.8x FY15e). Also, it is now quoting lower than its past three-year average EV/EBITDA multiple. Risks. Delayed demand recovery, disruption in exports, unfavourable forex movement, labour trouble at the Chakan plant and higher commodity prices. Rating: Buy Target Price: `2,199 Share Price: `2,053 Key data BJAUT IN / BAJA.BO 52-week high / low `2,194/ `1,658 Sensex / Nifty / m average volume US$16.1m Market cap `594.75bn / US$9.91bn Shares outstanding 289m Shareholding pattern (%) Dec 13 Sep 13 Jun 13 Promoters of which, Pledged Free Float Foreign Institutions Domestic Institutions Public Estimates revision (%) FY14e FY15e FY16e Sales EBITDA EPS Financials (YE Mar) FY14e FY15e Sales (`m) 200, ,288 Net profit (`m) 32,835 37,853 EPS (`) Growth (%) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%) Quarterly results (YE Mar) 4QFY13 4QFY14e % yoy 9MFY13 9MFY14 % yoy Sales (`m) 47,465 48, , , EBITDA (`m) 8,366 9, ,467 32, EBITDA margin (%) bps bps Interest (`m) Depreciation (`m) ,174 1, Other income (`m) 2,436 2, ,999 5, PBT (`m) 10,334 11, ,328 35, Tax (`m) 2,676 3, ,550 10, Tax rate (%) bps bps Adjusted Profit (`m) 7,658 7, ,750 25, Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

45 7 April 2014 Bajaj Auto Volumes to look up; Buy Quick Glance Financials and Valuations Fig 1 Income statement (`m) Net revenues 195, , , , ,765 Revenue growth (%) Op. expenses 158, , , , ,432 EBIDTA 37,200 36,833 41,721 48,554 54,332 EBITDA margin (%) Interest expenses Depreciation 1,456 1,640 1,873 2,056 2,224 + Other income 6,080 7,435 7,441 7,971 8,604 - Extraordinary items 1, Tax 10,221 12,227 14,330 16,612 18,516 Effective tax rate (%) Reported Profit 30,041 30,436 32,556 37,853 42,192 Adjusted Profit 31,046 30,408 32,835 37,853 42,192 Adj. Profit growth (%) Adj. FDEPS (`/share) Adj. FDEPS growth (%) Fig 2 Balance sheet (`m) Share capital 2,894 2,894 2,894 2,894 2,894 Reserves & surplus 57,517 76,126 94, , ,980 Net worth 60,411 79,020 97, , ,874 Total debt 1, Def. tax liab. (net) 484 1,151 1,151 1,151 1,151 Capital employed 62,145 81,055 99, , ,909 Net fixed assets 15,234 20,980 22,107 25,051 27,827 Investments 48,828 64,305 84, , ,305 Net working capital -18,455-9,818-10,985-8,315-5,773 Cash and bank balance 16,538 5,589 3,715 3,038 3,550 Capital deployed 62,145 81,055 99, , ,909 No. of shares (m) Net debt -64,116-69,009-87, , ,970 Net debt / Equity WC turn days Book value (`/sh) Fig 3 Cash-flow statement (`m) Reported Profit 30,041 30,436 32,556 37,853 42,192 + Depreciation 1,456 1,640 1,873 2,056 2,224 Cash profit 31,497 32,075 34,428 39,908 44,416 - Incr./(decr.) in WC -6,344 8,637-1,166 2,670 2,542 Operating cash-flow 37,841 23,439 35,595 37,238 41,874 - Capex ,847 3,000 5,000 5,000 Free cash-flow 38,078 16,592 32,595 32,238 36,874 - Dividend 15,134 15,235 16,927 18,620 20,313 + Equity raised Debt raised -2, Investments 1,609 15,477 20,000 17,000 19,000 - Misc. items 4,848-3,535-2,459-2,705-2,951 Net cash-flow 14,251-10,950-1, Op. cash & bank bal. 2,288 16,538 5,589 3,715 3,038 Cl. cash & bank bal. 16,539 5,588 3,715 3,038 3,550 Fig 4 Ratio `2,053 P/E (x) P/B (x) EV/EBITDA (x) RoE (%) RoCE (%) Dividend yield (%) Dividend payout (%) Debt to equity (%) Core P/E (x) Cash P/E EV/sales Inventory days Receivables days Payables days Asset Turnover Fig 5 PE band Fig 6 Product mix 2,800 1,250,000 20x 2,400 18x 1,000,000 2,000 16x 750,000 1,600 14x 12x 500,000 1,200 10x 250, Apr-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 1QFY11 2QFY11 3QFY11 4QFY11 Two-wheelers 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 Three-wheelers 2QFY14 3QFY14 Source: Bloomberg, Anand Rathi Research Anand Rathi Research 8

46 India I Equities Autos Result Preview 7 April 2014 Maruti Suzuki Premium valuations; Sell Key takeaways Vehicle sales lower. Maruti Suzuki s 4QFY14 sales volume was weak, down 5.5% yoy, to 324,870 units. We anticipate 10.7% growth in FY15, against volume decline of 1.4% in FY14. Weak growth trend for the company over FY11-14 saw a compounded volume decline of 3.1%. In early Jun 13, the company had to control production at its diesel plant, which until last year was running at full utilisation. Lower excise duties in 1QFY15 would, however, help in advancing the demand. Results to be decent. We expect 5.5% yoy revenue decline, to `125.7bn (5.5% volume decline and 0.2% decline in realisations). Our EBITDA margin expectation is 12.8% (up 40bps qoq, 190bps lower yoy due to the merger of SPIL in 4QFY13). This would also lead to EBITDA declining 17.3% yoy, and profit being lower 20.7% yoy to `9.5bn. Suzuki Powertrain was merged in 4QFY13, which has led to a higher base. Per unit figures good. Contribution per vehicle is expected to be higher 3.2% qoq, while EBITDA per vehicle could be up 5.6% qoq. Our take. In FY15, the company would benefit from a favourable exchange rate and low base for its vehicle sales. Nevertheless, headwinds of curtailed demand for passenger cars and of launches by competitors would pose as speed bumps. In the past two quarters, EBITDA margin has moved up to a better trajectory. We believe that the short-term positives are already been factored ` into the price, while possible downgrades in vehicle sales estimates have not yet been completely captured. Additionally, the proposed structure for the new Gujarat plant complicates matters over the long term. For the short term, though, it would prove positive for the company because cash is now being conserved. We retain our Sell recommendation on likely loss of market share ahead and expensive valuations. Risks. Above-expected volume growth and currency-related benefits. Quarterly results (YE Mar) 4QFY13 4QFY14e % yoy 9MFY13 9MFY14 % yoy Sales (`m) 133, , , , EBITDA (`m) 19,496 16, ,861 38, EBITDA margin (%) bps bps Interest (`m) ,171 1, Depreciation (`m) 8,159 5, ,453 15, Other income (`m) 3,990 2, ,143 4, PBT (`m) 15,101 12, ,810 26, Tax (`m) 2,705 3, ,285 6, Tax rate (%) bps bps Adjusted Profit (`m) 12,016 9, ,224 19, Rating: Sell Target Price: `1,627 Share Price: `1,931 Key data MSIL IN / MRTI.BO 52-week high / low `1,980 / `1,217 Sensex / Nifty / m average volume US$23.1m Market cap `589.91bn / US$9.83bn Shares outstanding 302m Shareholding pattern (%) Dec 13 Sep 13 Jun 13 Promoters of which, Pledged Free Float Foreign Institutions Domestic Institutions Public Financials (YE Mar) FY14e FY15e Sales (`m) 441, ,767 Net profit (`m) 29,356 33,936 EPS (`) Growth (%) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%) Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

47 7 April 2014 Maruti Suzuki Premium valuations; Sell Quick Glance Financials and Valuations Fig 1 Income statement (`m) Net revenues 355, , , , ,853 Revenue growth (%) Op. expenses 331, , , , ,441 EBIDTA 24,819 41,797 54,550 61,948 69,412 EBITDA margin (%) Interest expenses 552 1,898 1,893 2,049 2,049 - Depreciation 11,384 18,612 20,992 23,042 25,392 + Other income 8,269 7,694 7,088 8,391 11,708 - Extraordinary items Tax 5,111 5,989 9,398 11,312 13,420 Effective tax rate (%) Reported Profit 16,352 23,921 29,356 33,936 40,259 Adjusted Profit 16,119 23,215 29,356 33,936 40,259 Adj. Profit growth (%) Adj. FDEPS (`/share) Adj. FDEPS growth (%) Fig 2 Balance sheet (`m) Share capital 1,445 1,510 1,510 1,510 1,510 Reserves & surplus 150, , , , ,164 Net worth 151, , , , ,674 Total debt 10,783 13,892 16,392 16,392 16,392 Def. tax liab. (net) 3,023 4,087 4,087 4,087 4,087 Capital employed 165, , , , ,153 Net fixed assets 81, , , , ,285 Investments 61,474 70,783 75, , ,783 Net working capital -1,476 7,822-4,438-3,310-1,976 Cash and bank balance 24,361 7,750 8,843 16,370 32,062 Capital deployed 165, , , , ,153 No. of shares (m) Net debt -75,052-64,640-68, , ,452 Net debt / Equity WC turn days Book value (`/sh) Fig 3 Cash-flow statement (`m) Reported Profit 16,352 23,921 29,356 33,936 40,259 + Depreciation 11,384 18,612 20,992 23,042 25,392 Cash profit 27,735 42,533 50,348 56,978 65,651 - Incr./(decr.) in WC -3,425 9,298-12,260 1,128 1,334 Operating cash-flow 31,160 33,235 62,608 55,850 64,317 - Capex 27,459 63,968 56,296 20,000 20,000 Free cash-flow 3,701-30,733 6,312 35,850 44,317 - Dividend 2,167 2,417 2,719 3,323 3,625 + Equity raised Debt raised 9,081 3,109 2, Investments 10,406 9,309 5,000 25,000 25,000 - Misc. items , Net cash-flow ,611 1,093 7,527 15,692 + Op. cash & bank bal. 25,085 24,361 7,750 8,843 16,370 Cl. cash & bank bal. 24,361 7,750 8,843 16,370 32,062 Fig 4 Ratio `1,931 P/E (x) P/B (x) EV/EBITDA (x) RoE (%) RoCE (%) Dividend yield (%) Dividend payout (%) Debt to equity (%) Core P/E (x) Cash P/E EV/sales Inventory days Receivables days Payables days Asset Turnover Fig 5 PE band Fig 6 Product mix 2,600 24x 375,000 2,200 21x 300,000 18x 225,000 1,800 15x 150,000 1,400 12x 75,000 1, QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 Apr-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Mini Compact Super Compact Mid-Size Executive UVs Vans Exports Source: Bloomberg, Anand Rathi Research Anand Rathi Research 10

48 India I Equities Autos Result Preview Change in Estimates Target Reco 7 April 2014 Hero MotoCorp. Laying groundwork for future; Buy Key takeaways Demand scenario decent. Hero MotoCorp. s 4QFY14 volumes were decent, and on a lower base the company reported yoy growth for a third successive quarter (after a yoy decline in 2HFY13 and 1HFY14). Twowheeler sales were up 3.9% yoy (lower 5.4% qoq). Consequent on the weak demand environment in the auto industry and keener competition, we expect this challenging industry scenario to continue into 1HCY14. The reduction in excise duty may provide some relief in the harsh demand environment. 4QFY14 likely to be good. We expect 7.4% yoy income growth, to `66bn, and 10.6% yoy EBITDA growth, to `9.4bn. We expect EBITDA margin at 14.2% (up 40bps yoy and 110bps qoq). 4Q tax rate is likely at 27% (up ~10% yoy), which would result in profits being lower 1.8% yoy, at `5.6bn. Decent progress on R&D. The company has started work on building a new R&D centre at Kukas, Rajasthan. This would be a `4.5bn project, slated to commence operations in 1QCY15. The existing R&D centres at Gurgaon and Dharuhera would also be shifted to Kukas once it is complete. Kukas would be the hub for developing models for domestic and export markets. Besides, the company is setting up a manufacturing plant and a global parts centre at Neemrana, which would start operations in Our take. In the past two quarters, the company registered an increase in profitability (following yoy decline in the four preceding quarters). A lower base ` and yoy margin improvement in 2Q and 3QFY14 have helped. The margin improvement and phasing out of royalty payment would help earnings growth in FY15 and FY16, rendering valuations less expensive. Also, greater capacity would help increase sales of scooters, the faster-growing segment. We value the stock at 16x Sep 15 core earnings (`2,260), with `215 as the value of cash and investments, and arrive at a price target of `2,475 a share. Risks. Lower-than-expected volumes, failure to meet cost reduction targets. Quarterly results (YE Mar) 4QFY13 4QFY14e % yoy 9MFY13 9MFY14 % yoy Sales (`m) 61,458 65, , , EBITDA (`m) 8,498 9, ,347 26, EBITDA margin (%) bps bps Interest (`m) Depreciation (`m) 2,655 2, ,762 8, Other income (`m) 1,045 1, ,939 3, PBT (`m) 6,857 7, ,435 21, Tax (`m) 1,115 2, ,996 5, Tax rate (%) ,073bps ,062bps Adjusted Profit (`m) 5,742 5, ,439 15, Rating: Buy Target Price: `2,475 Share Price: `2,254 Key data HMCL IN / HROM.BO 52-week high / low `2,298 / `1,434 Sensex / Nifty / m average volume US$14.8m Market cap `450.1bn / US$7.50bn Shares outstanding 199.7m Shareholding pattern (%) Dec 13 Sep 13 Jun 13 Promoters of which, Pledged Free Float Foreign Institutions Domestic Institutions Public Estimates revision (%) FY14e FY15e FY16e Sales EBITDA EPS Financials (YE Mar) FY14e FY15e Sales (`m) 253, ,990 Net profit (`m) 21,185 28,995 EPS (`) Growth (%) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%) Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

49 7 April 2014 Hero MotoCorp. Laying groundwork for future; Buy Quick Glance Financials and Valuations Fig 1 Income statement (`m) Net revenues 235, , , , ,341 Revenue growth (%) Op. expenses 199, , , , ,582 EBIDTA 36,048 32,845 35,857 41,914 48,759 EBITDA margin (%) Interest expenses Depreciation 10,974 11,418 11,120 6,970 6,055 + Other income 3,408 3,984 4,369 4,921 5,507 - Extraordinary items Tax 4,866 4,110 7,796 10,724 12,980 Effective tax rate (%) Reported Profit 23,752 21,182 21,185 28,995 35,094 Adjusted Profit 23,752 21,182 21,185 28,995 35,094 Adj. Profit growth (%) Adj. FDEPS (`/share) Adj. FDEPS growth (%) Fig 2 Balance sheet (`m) Share capital Reserves & surplus 42,499 49,663 60,863 77,876 97,992 Net worth 42,898 50,062 61,262 78,275 98,391 Total debt 9, Def. tax liab. (net) 2,083 1,324 1,324 1,324 1,324 Capital employed 54,929 51,387 62,586 79,599 99,715 Net fixed assets 38,244 31,331 32,211 43,241 43,187 Investments 39,643 36,238 46,238 56,238 66,238 Net working capital -23,725-17,993-18,248-20,913-23,061 Cash and bank balance 768 1,810 2,385 1,032 13,351 Capital deployed 54,929 51,387 62,586 79,599 99,715 No. of shares (m) Net debt -30,462-38,049-48,623-57,270-79,590 Net debt / Equity WC turn days Book value (`/sh) Fig 3 Cash-flow statement (`m) Reported Profit 23,752 21,182 21,185 28,995 35,094 + Depreciation 10,974 11,418 11,120 6,970 6,055 Cash profit 34,726 32,599 32,304 35,965 41,148 - Incr./(decr.) in WC 22,967 5, ,664-2,149 Operating cash-flow 11,758 26,867 32,560 38,629 43,297 - Capex 7,587 4,505 12,000 18,000 6,000 Free cash-flow 4,171 22,362 20,560 20,629 37,297 - Dividend 8,987 11,982 9,985 11,982 14,978 + Equity raised Debt raised -4,636-9, Investments -11,645-3,404 10,000 10,000 10,000 - Misc. items 2,141 2, Net cash-flow 53 1, ,353 12,320 + Op. cash & bank bal ,810 2,385 1,032 Cl. cash & bank bal ,810 2,385 1,032 13,351 Fig 4 Ratio `2,254 P/E (x) P/B (x) EV/EBITDA (x) RoE (%) RoCE (%) Dividend yield (%) Dividend payout (%) Debt to equity (%) Core P/E (x) Cash P/E EV/sales Inventory days Receivables days Payables days Asset Turnover Fig 5 PE band Fig 6 Product mix 3,500 2,000,000 3,000 22x 20x 1,750,000 1,500,000 2,500 18x 16x 1,250,000 1,000,000 2,000 14x 750,000 12x 500,000 1, ,000 1,000 Apr-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 Motorcycles 4QFY12 1QFY13 2QFY13 Scooters 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 Source: Bloomberg, Anand Rathi Research Anand Rathi Research 12

50 India I Equities Autos Result Preview Change in Estimates Target Reco 7 April 2014 Eicher Motors Valuations rich; Sell Key takeaways Royal Enfield s performance steadfast. Operating performance at Royal Enfield (RE) is expected to be strong, helped by robust sales and operating leverage. Following ~85% yoy volume growth, we expect income to rise 85.3% yoy, to `6.2bn. EBITDA margin could grow 19%, up 130bps yoy. Hence, we expect Eicher Motors standalone profits at `1.4bn, up 40.1% yoy. Low CV sales to hit VECV performance. For subsidiaries, we expect decline of 8.7% in revenues and 31.5% in EBITDA, on a yoy basis. We expect EBITDA margin at 6% (lower 200bps yoy, and up 70bps qoq). Profit is likely at `91m. Consolidated profits to be led by RE. Consolidated revenues would be hit by the current slump in M&H CV sales, but strong standalone performance is likely to undo a lot of the damage. We expect revenues to grow 9.5% yoy in the consolidated results. On weaker CV sales, we expect EBITDA margin to come at 10.3% (up 40bps qoq and yoy). We expect the adjusted net profit to be `1.5bn, up 48.4% yoy. Our take. RE continues to be robust due to greater capacity and sustained demand. The M&H CV slide, however, is expected to result in a lower growth rate for VECV. The recent run-up in the stock price has rendered valuations rich. While we are optimistic from a long-term perspective, we maintain Sell to reflect the premium valuations. Our target price is `5,386. At the ruling price, the stock trades at PE of 23.5x CY15e. Risks. Upside: Sequential improvement in operating performance, recovery in the CV cycle in CY15, and quicker revenue accretion from the engine plant. Quarterly results (YE Dec) 1QCY13 1QCY14e % yoy CY12 CY13 % yoy Sales (`m) 17,243 18, ,899 67, EBITDA (`m) 1,705 1, ,490 6, EBITDA margin (%) bps bps Interest (`m) Depreciation (`m) , Other income (`m) , PBT (`m) 1,868 2, ,997 6, Tax (`m) ,249 1, Tax rate (%) bps bps Adjusted Profit (`m) 979 1, ,243 3, Rating: Sell Target Price: `5,386 Share Price: `6,110 Key data EIM IN / EICH.BO 52-week high / low `6175 / `2625 Sensex / Nifty / m average volume US$0.9m Market cap `133.97bn / US$2.16bn Shares outstanding 27m Shareholding pattern (%) Dec 13 Sep 13 Jun 13 Promoters of which, Pledged Free Float Foreign Institutions Domestic Institutions Public Financials (YE Dec) CY14e CY15e Sales (`m) 86, ,905 Net profit (`m) 5,554 7,041 EPS (`) Growth (%) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%) Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

51 7 April 2014 Eicher Motors Valuations rich; Sell Quick Glance Financials and Valuations Fig 1 Income statement (`m) Year-end: Dec CY11 CY12 CY13 CY14e CY15e Net revenues 56,844 63,899 67,571 86, ,905 Revenue growth (%) Op. expenses 50,951 58,409 60,966 76,392 98,001 EBIDTA 5,894 5,490 6,605 9,778 12,904 EBITDA margin (%) Interest expenses Depreciation ,300 1,912 2,276 + Other income 1,425 1, ,016 1,084 - Extraordinary items Tax 1,628 1,249 1,452 1,986 2,592 Effective tax rate (%) Reported Profit bef MI 4,974 4,749 5,254 6,816 9,042 Profit after MI 3,088 3,243 3,939 5,554 7,041 Adj. Profit 3,088 3,243 3,544 5,554 7,041 Adj. Profit growth (%) Adj. FDEPS (`/share) Fig 2 Balance sheet (`m) Year-end: Dec CY11 CY12 CY13 CY14e CY15e Share capital Reserves & surplus 14,661 17,279 20,284 26,035 33,905 Net worth 14,931 17,549 20,554 26,305 34,175 Total debt Def. tax liab. (net) 9,021 10,717 12,202 12,202 12,202 Capital employed 24,324 28,649 33,595 39,346 47,216 Net fixed assets 8,567 14,962 21,197 29,286 32,009 Investments 5,126 6,385 8,255 9,009 12,009 Net working capital -1, ,683-3,177-4,317 Cash and bank bal. 11,915 8,035 6,826 4,229 7,515 Capital deployed 24,324 28,649 33,595 39,346 47,216 No. of shares (m) Net Debt -16,670-14,036-14,241-12, ,684.8 Net debt / Equity WC turn days Book value (`/sh) ,264 Fig 3 Cash-flow statement (`m) Year-end: Dec CY11 CY12 CY13 CY14e CY15e Reported Profit 4,974 4,749 5,254 6,816 9,042 + Depreciation ,300 1,912 2,276 Cash profit 5,614 5,570 6,554 8,728 11,318 - Incr./(decr.) in WC , Operating cash-flow 5,503 4,812 8,049 9,048 12,283 - Capex 4,660 7,216 7,536 10,000 5,000 Free cash-flow 843-2, ,283 - Dividend ,005 + Equity raised Debt raised Investments ,259-1, ,000 - Misc. items 909 2,207 3,238 1,486 5,992 Net cash-flow ,880-1,210-2,597 3,286 + Op. cash & bank bal. 12,457 11,915 8,035 6,826 4,229 Cl. cash & bank bal. 11,915 8,035 6,825 4,228 7,515 Fig 4 Ratio `6,110 Year-end: Dec CY11 CY12 CY13 CY14e CY15e P/E (x) P/B (x) EV/EBITDA (x) RoE (%) RoCE (%) Dividend yield (%) Dividend payout (%) Debt to equity (%) Core P/E (x) Cash P/E EV/sales Inventory days Receivables days Payables days Asset Turnover Fig 5 PE band Fig 6 Trend in volume growth 6,000 29x 60, ,000 24x 55,000 50, ,000 19x 45, ,000 EIM 14x 40,000 35, ,000 1,000 9x 4x 30,000 25,000 20, Jan-09 Apr-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 1QCY11 2QCY11 3QCY11 Volume 4QCY11 1QCY12 2QCY12 3QCY12 4QCY12 1QCY13 2QCY13 yoy change (RHS) 3QCY13 Source: Bloomberg, Anand Rathi Research Anand Rathi Research 14

52 India I Equities Autos Result Preview Change in Estimates Target Reco 7 April 2014 Ashok Leyland Weak demand persists; Sell Key takeaways Sales down yoy and qoq. Ashok Leyland s (AL) 4QFY14 sales were poor, down 24.6% yoy, capping a weak FY14. The decline is all encompassing, as LCVs dipped 34.8% yoy and M&H CVs were down 21.1% yoy (despite lower base). A near-term recovery is unlikely, although 3Q may have marked the bottom in absolute volumes. We hope for a full cyclical recovery in 2HFY15. Revenues likely to decline. For a sixth consecutive quarter, AL s revenues are expected to dip in 4QFY14. Moreover, we do not expect any respite for the company in 1QFY15 either. On the 24.6% yoy volume decline, and an expected 3% yoy growth in realisations, we expect the company s 4Q revenues to be `29bn, lower 22.3% yoy (but up 48.3% qoq). Losses to sustain for third successive quarter. On low operating leverage, we expect 4Q EBITDA margin to be (1.6%), while there would be an adjusted loss of `1.8bn. Sale of 5m IndusInd Bank shares would boost the reported profit in 4Q. Our take. With the company at the wrong end of the CV cycle, the poor performance is likely to continue in 1HCY14. Although its LCV, Dost, was faring better, its recent performance has been muted. The bread-and-butter M&H CV segment continues to sputter. We have a Sell on the stock because of the ongoing downswing in the M&H CV cycle, with a near-term recovery appearing unlikely. While the low FY14 base would arrest the fall, recouped volumes based on swelling demand are likely only in 2HFY15. On a positive ` note, the company is taking steps to de-leverage the balance sheet, which is a long-term positive, as would be gathering tailwinds; in the near-term, the cyclical downturn would be an overbearing factor. The stock quotes at 10.4x FY16e EV/EBITDA. Our target of `17 is based upon a target EV/E of 9x FY16e. Risks. Strong economic growth, rise in freight rates, more-thanexpected LCV profitability. Quarterly results (YE Mar) 4QFY13 4QFY14e % yoy 9MFY13 9MFY14 % yoy Sales (`m) 37,285 28, ,839 68, EBITDA (`m) 1, , EBITDA margin (%) bps bps Interest (`m) 828 1, ,941 3, Depreciation (`m) 1, ,808 2, Other income (`m) PBT (`m) 1,614-2, ,410-5, Tax (`m) , Tax rate (%) ,721bps bps Adjusted Profit (`m) 291-1, ,323-4, Rating: Sell Target Price: `17 Share Price: `23 Key data ALIN / AL.BO 52-week high / low `25 / `12 Sensex / Nifty / m average volume US$3.7m Market cap `62.39bn / US$1.04bn Shares outstanding 2,661m Shareholding pattern (%) Dec 13 Sep 13 Jun 13 Promoters of which, Pledged Free Float Foreign Institutions Domestic Institutions Public Financials (YE Mar) FY14e FY15e Sales (`m) 97, ,604 Net profit (`m) -6, EPS (`) Growth (%) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%) Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

53 7 April 2014 Ashok Leyland Weak demand persists; Sell Quick Glance Financials and Valuations Fig 1 Income statement (`m) Net revenues 129, ,812 97, , ,043 Revenue growth (%) Op. expenses 115, ,167 98, , ,707 EBIDTA 13,071 8, ,136 11,335 EBITDA margin (%) Interest expenses 2,553 3,769 4,592 4,090 3,651 - Depreciation 3,528 3,808 3,645 4,042 4,242 + Other income Extraordinary items 494-3,016-1, Tax 1, , ,067 Effective tax rate (%) Reported Profit 5,660 4,337-5, ,200 Adjusted Profit 6,092 1,623-6, ,200 Adj. Profit growth (%) ,892.5 Adj. FDEPS (`/share) Adj. FDEPS growth (%) ,892.5 Fig 2 Balance sheet (`m) Share capital 2,661 2,661 2,661 2,661 2,661 Reserves & surplus 26,287 28,933 23,801 22,844 24,487 Net worth 28,948 31,594 26,461 25,505 27,148 Total debt 31,421 44,261 58,511 57,711 56,711 Def. tax liab. (net) 4,945 5,264 5,264 5,264 5,264 Capital employed 65,315 81,119 90,236 88,480 89,123 Net fixed assets 41,484 46,742 48,097 48,055 47,814 Investments 15,345 23,376 25,376 23,376 24,876 Net working capital 8,161 10,861 16,490 16,899 16,040 Cash and bank bal Capital deployed 65,315 81,119 90,236 88,480 89,123 No. of shares (m) 2,661 2,661 2,661 2,661 2,661 Net debt 31,096 44,122 58,238 57,562 56,318 Net debt / Equity WC turn days Book value (`/sh) Fig 3 Cash-flow statement (`m) Reported Profit 5,660 4,337-5, ,200 + Depreciation 3,528 3,808 3,645 4,042 4,242 Cash profit 9,188 8,145-1,488 3,863 7,442 - Incr./(decr.) in WC 2,010 2,701 5, Operating cash-flow 7,178 5,444-7,117 3,454 8,300 - Capex 7,477 8,923 5,000 4,000 4,000 Free cash-flow ,479-12, ,300 - Dividend 2,661 1, ,330 + Equity raised Debt raised 5,326 12,840 14, ,000 - Investments 3,045 8,032 2,000-2,000 1,500 - Misc. items Net cash-flow -1, Op. cash & bank bal. 1, Cl. cash & bank bal Fig 4 Ratio `23 P/E (x) P/B (x) EV/EBITDA (x) RoE (%) RoCE (%) Dividend yield (%) Dividend payout (%) Debt to equity (%) Core P/E (x) Cash P/E EV/sales Inventory days Receivables days Payables days Asset Turnover Fig 5 PB band Fig 6 Volume growth trend (units) (%) 40, x 35, x 30, x 2.10x 25, AL 1.55x 1.00x 20, , Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 Volume (units) yoy change (%) 2QFY14 3QFY14 Source: Bloomberg, Anand Rathi Research Anand Rathi Research 16

54 India I Equities Autos Result Preview Change in Estimates Target Reco 7 April 2014 TVS Motors Competitive pressures continue; Sell Key takeaways Weak demand continues. During 4QFY14, TVS Motors sales of mopeds were down 1.1% yoy. Motorcycles and scooters fared better, registering 4.8% and 38% yoy sales growth, respectively; the latter on a lower base and good acceptance of the newly launched Jive. The three-wheeler segment displayed a strong growth trajectory, up 54.7% yoy. Three-wheelers have been up consistently, while two wheelers continue to struggle. 4QFY14 results to be decent. On a lower base the previous year, 4QFY14 results are expected to be good, with 25.4% yoy revenue growth (10.1% volume growth yoy and 14% yoy realisation improvement), to `21.9bn. EBITDA margin is expected to be 6.8% (up 90bps yoy and 80bps qoq). We expect 58.9% yoy EBITDA growth on the lower base. We anticipate profit to grow 73.7% yoy, to `852m, with an effective tax rate of 26.3%. Our profit margin expectation is 3.9% (110bps higher yoy, 60bps higher qoq). Per-unit parameters lower qoq. We expect EBITDA per vehicle to be 44.2% higher yoy (up 11.8% qoq), while the contribution per vehicle is expected to be up 13.7% yoy (lower 1.5% qoq). Profit per vehicle is expected to be 57.7% higher yoy (lower 14.7% qoq). Our take. Restrained domestic and overseas sales resulted in TVS reporting lower 1QFY14 results yoy. In 2Q and 3Q, the performance was much better, driven by higher realizations. While intense competition, subdued domestic demand and lower overseas sales curtail potential for yoy growth in FY14, demand ` recovery is likely in FY15. 1QFY14 volume decline was 13.2% (after 7.5% yoy dip in FY13), while 2Q and 3Q growth (at 4.1% yoy and 3.2% yoy respectively) was also subdued. In view of the recent run-up in the stock price, we rate it a Sell. Risks. Above-expected demand and operating performance, technology tie-up with foreign partner, which could lead to faster product development and new product launches. Quarterly results (YE Mar) 4QFY13 4QFY14e % yoy 9MFY13 9MFY14 % yoy Sales (`m) 17,483 21, ,096 58, EBITDA (`m) 938 1, ,157 3, EBITDA margin (%) bps bps Interest (`m) Depreciation (`m) Other income (`m) PBT (`m) , ,913 2, Tax (`m) Tax rate (%) ,442bps bps Adjusted Profit (`m) ,487 1, Rating: Sell Target Price: `79 Share Price: `95 Key data TVSL IN / TVSM.BO 52-week high / low `101 / `28 Sensex / Nifty / m average volume US$1.1m Market cap `45.32bn / US$755.33m Shares outstanding 475.1m Shareholding pattern (%) Dec 13 Sep 13 Jun 13 Promoters of which, Pledged Free Float Foreign Institutions Domestic Institutions Public Estimates revision (%) FY14e FY15e FY16e Sales EBITDA EPS Financials (YE Mar) FY14e FY15e Sales (`m) 79,983 90,169 Net profit (`m) 2,674 3,014 EPS (`) Growth (%) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%) Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

55 7 April 2014 TVS Motors Competitive pressures continue; Sell Quick Glance Financials and Valuations Fig 1 Income statement (`m) Net revenues 71,262 70,650 79,983 90, ,925 Revenue growth (%) Op. expenses 66,568 66,560 75,104 84,579 94,566 EBIDTA 4,694 4,090 4,879 5,590 6,358 EBITDA margin (%) Interest expenses Depreciation 1,175 1,304 1,302 1,448 1,594 + Other income Extraordinary items Tax ,016 1,231 1,420 Effective tax rate (%) Reported Profit 2,491 1,160 2,947 3,014 3,477 Adjusted Profit 2,491 1,978 2,674 3,014 3,477 Adj. Profit growth (%) Adj. FDEPS (`/share) Adj. FDEPS growth (%) Fig 2 Balance sheet (`m) Share capital Reserves & surplus 11,218 11,772 14,006 16,189 18,716 Net worth 11,693 12,247 14,481 16,664 19,191 Total debt 8,311 5,459 5,809 5,809 5,809 Def. tax liab. (net) Capital employed 20,979 18,637 21,221 23,404 25,931 Net fixed assets 10,781 10,476 12,174 13,226 14,632 Investments 9,309 8,688 8,688 9,688 10,688 Net working capital Cash and bank balance ,099 1,258 1,407 Capital deployed 20,979 18,637 21,221 23,404 25,931 No. of shares (m) Net debt 8,181 5,284 4,709 4,551 4,402 Net debt / Equity WC turn days Book value (`/sh) Fig 3 Cash-flow statement (`m) Reported Profit 2,491 1,160 2,947 3,014 3,477 + Depreciation 1,175 1,304 1,302 1,448 1,594 Cash profit 3,666 2,464 4,249 4,462 5,071 - Incr./(decr.) in WC -1,249-1, Operating cash-flow 4,915 3,926 4,287 4,490 5,100 - Capex 1, ,000 2,500 3,000 Free cash-flow 3,141 2,927 1,287 1,990 2,100 - Dividend Equity raised Debt raised 633-2, Investments 2, ,000 1,000 - Misc. items Net cash-flow Op. cash & bank bal ,099 1,258 Cl. cash & bank bal ,099 1,258 1,407 Fig 4 Ratio `95 P/E (x) P/B (x) EV/EBITDA (x) RoE (%) RoCE (%) Dividend yield (%) Dividend payout (%) Debt to equity (%) Core P/E (x) Cash P/E EV/sales Inventory days Receivables days Payables days Asset Turnover Fig 5 PE band Fig 6 Product mix x 700, , x 500, x 10x 400, , x 200, x 100, Apr-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 Scooters Mopeds Motorcycles Three-wheelers 3QFY14 Source: Bloomberg, Anand Rathi Research Anand Rathi Research 18

56 India I Equities Autos Result Preview Change in Estimates Target Reco 7 April 2014 VST Tillers & Tractors Healthy performance to stay; Buy Key takeaways 4Q to continue 9M trend. While tractor industry sales were robust in 1H, power tillers also displayed a good trajectory. Consequent on 14.3% yoy estimated volume growth, we expect 15.9% yoy revenue growth, to `1.6bn. Our EBITDA margin expectation is 19.4% (up 420bps yoy and 30bps qoq). We expect EBITDA to grow 48% yoy, to `316m. We expect `212m in profit, up 40.6% yoy (stable qoq). Per-unit figures to improve. We expect realisations to be 1.4% higher yoy, while contribution per unit is expected to be 9.5% higher yoy. While the base is no longer low as it was in 2Q, we expect EBITDA and profit, per vehicle, to be up 29.5% and 23% yoy. Long-term outlook good. More than 50% of cultivated land is less than four hectares (of this, ~42% is less than two hectares). Nearly 83% of operational landholders are marginal or small farmers, who own less than two hectares. This trend augurs well for the company. Our take. Lower offtake of tractors and power tillers had hit the 2QFY13 performance. While 2HFY13 was better, 1HFY14 has marked a return to robust volumes. 3QFY14 has maintained this trend. We estimate 27% and 25% growth for power tillers and tractors, respectively, in FY14. Demand for tractors is expected to be good, despite the company facing problems on sourcing a few components. The ramp-up of production at the new plant ` would be an additional growth driver. We are optimistic for the long term and maintain Buy. While the stock price has appreciated significantly in the past three quarters, we believe: (1) The upside potential is not yet completely captured; and (2) growth on its differentiated portfolio would be better than the rest of the tractor industry. We upgrade our target price to `1047. The stock currently trades at 8.7x FY15e. Risks. Intense competition, change in government policies. Quarterly results (YE Mar) 4QFY13 4QFY14e % yoy 9MFY13 9MFY14 % yoy Sales (`m) 1,406 1, ,411 4, EBITDA (`m) EBITDA margin (%) bps bps Interest (`m) Depreciation (`m) Other income (`m) PBT (`m) Tax (`m) Tax rate (%) bps bps Profit (`m) Rating: Buy Target Price: `1,047 Share Price: `912 Key data VSTT IN / VST.BO 52-week high / low `974 / `332 Sensex / Nifty / m average volume US$0.1m Market cap `8.23bn / US$137.2m Shares outstanding 8.6m Shareholding pattern (%) Dec 13 Sep 13 Jun 13 Promoters of which, Pledged Free Float Foreign Institutions Domestic Institutions Public Estimates revision (%) FY14e FY15e FY16e Sales EBITDA EPS Financials (YE Mar) FY14e FY15e Sales (`m) 6,238 7,560 Net profit (`m) EPS (`) Growth (%) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%) Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

57 7 April 2014 VST Tillers and Tractors Healthy performance to stay; Buy Quick Glance Financials and Valuations Fig 1 Income statement (`m) Net revenues 5,306 4,817 6,252 7,574 9,262 Revenue growth (%) Op. expenses 4,578 4,095 5,090 6,244 7,616 EBIDTA ,162 1,329 1,646 EBITDA margin (%) Interest expenses Depreciation Other income Extraordinary items Tax Effective tax rate (%) Reported Profit ,108 Adjusted Profit ,108 Adj. Profit growth (%) Adj. FDEPS (`/share) Adj. FDEPS growth (%) Fig 2 Balance sheet (`m) Share capital Reserves & surplus 1,963 2,357 3,049 3,839 4,826 Net worth 2,049 2,444 3,135 3,925 4,912 Total debt Def. tax liab. (net) Capital employed 2,241 2,473 3,164 3,954 4,941 Net fixed assets ,273 1,411 1,532 Investments Working capital 1,159 1,187 1,640 2,059 2,592 Cash Capital deployed 2,241 2,473 3,164 3,954 4,941 Net Debt No. of shares (m) Net Debt/ Equity (%) WC days Book value (`/sh) Fig 3 Cash-flow statement (`m) PAT ,108 + Non-cash items Cash profit ,187 - Incr./(Decr.) in WC Operating cash-flow Capex Free cash-flow Dividend Equity raised Debt raised Investments Misc. items Net cash-flow Op. cash & bank bal Cl. cash & bank bal Fig 4 Ratio `912 P/E (x) P/B (x) EV/EBITDA (x) RoE (%) RoCE (%) Dividend yield Dividend payout (%) Debt to equity (%) Core P/E (x) Cash P/E EV/sales Inventory days Receivables days Payables days Asset Turnover Fig 5 PE band Fig 6 EBITDA margin trend 1, x VST Tillers 8.0x 6.5x 5.0x x x Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 FY08 FY09 FY10 FY11 FY12 FY13 FY14e FY15e Source: Bloomberg, Anand Rathi Research Anand Rathi Research 20

58 India I Equities Auto Components Result Preview Change in Estimates Target Reco 72 April 2014 Motherson Sumi Systems Going s steady; Buy Rating: Buy Target Price: `302 Share Price: `256 Key takeaways Domestic performance to be decent. While car sales in India have been lower yoy, Motherson Sumi Systems (MSS) is in a position to ably combat this deceleration through supply for new models, consolidation of vendors by OEMs and the lower base for Maruti Suzuki. Ytd performance at its India operations has been good, as exports have been ramped up and plants were commissioned to meet further demand. However, on the high base and weak OEM sales, we expect standalone revenue to grow just 0.6% yoy, to `12.4bn, with adj. profit decline of 7.5% yoy, to `1.5bn. Steady performance by SMR, SMP. We expect the Europe-centric companies, SMR and SMP, to maintain trajectories of steadily improving performances. We estimate SMP s 4QFY14 EBITDA margin to be 6.2% (up 240bps yoy, up 30bps qoq) and SMR s at 11.1% (up 170bps yoy and 100bps qoq). Ahead, a recovery in European automotive production may strongly benefit both these companies. Consolidated results to be impressive. Consolidated revenues could grow 24.5% yoy, to `83.1bn. We expect 10.3% consolidated EBITDA margin (up 180bps yoy). We expect adjusted profit to grow 57.6% yoy, to `2.7bn (up 17.2% qoq). Our take. The company is expected to continue marching ahead, aided by product launches and customer additions, greater synergies from integrating its European acquisitions and the turnaround of its unprofitable plants. Launches by OEMs and customer additions would further boost growth. We retain Buy, with a target of `302. At our target, the stock would trade at 20x Sep 15e; at the ruling price, it trades at 18.7x FY15e. Risks. Sustained slowdown in demand, delay in launches of new models, currency volatility. Quarterly results (YE Mar) 4QFY13 4QFY14e % yoy 9MFY13 9MFY14 % yoy Sales (`m) 66,758 83, , , EBITDA (`m) 5,693 8, ,747 20, EBITDA margin (%) bps bps Interest (`m) ,917 2, Depreciation (`m) 1,873 2, ,133 6, Other income (`m) PBT (`m) 3,633 5, ,709 10, Tax (`m) 1,378 1, ,457 3, Tax rate (%) bps ,447bps PAT (`m) 1,717 2, ,725 6, Key data MSS IN / MOSS.BO 52-week high / low `277/ `116 Sensex / Nifty / m average volume US$1.2m Market cap `225.78bn / US$3.76bn Shares outstanding 882m Shareholding pattern (%) Dec 13 Sep 13 Jun 13 Promoters of which, Pledged Free Float Foreign Institutions Domestic Institutions Public Financials (YE Mar) FY14e FY15e Sales (`m) 306, ,751 Net profit (`m) 9,143 12,083 EPS (`) Growth (%) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%) Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

59 7 April 2014 Motherson Sumi Systems Going s steady; Buy Quick Glance Financials and Valuations Fig 1 Income statement (`m) Net revenues 149, , , , ,103 Revenue growth (%) Oper. expenses 138, , , , ,307 EBIDTA 10,744 19,440 29,384 37,169 44,796 EBITDA margins (%) Interest 1,649 2,495 2,806 2,877 2,445 - Depreciation 3,796 7,145 8,288 9,117 10,029 + Other income Extraordinaries & others 1,318 1,628 2, Tax 2,153 3,835 5,721 9,140 11,723 Effective tax rate (%) Reported PAT before MI 1,963 4,507 10,170 16,249 20,841 Adjusted PAT 3,519 5,400 9,143 12,083 14,507 PAT growth (%) Adj. FDEPS (`/share) Adj. FDEPS growth (%) Fig 2 Balance sheet (`m) Share capital Reserves & surplus 18,329 22,302 27,603 37,481 49,563 Net worth 18,717 22,890 28,485 38,363 50,445 Total debt 46,023 40,712 50,712 47,712 44,712 Def. tax liab. (net) 5,629 4,585 6,685 7,885 8,085 Capital employed 70,369 68,186 85,882 93, ,241 Net fixed assets 51,379 56,629 68,340 73,223 75,194 Investments Working capital 13,494 4,897 9,925 15,597 22,101 Cash 4,557 5,944 6,750 4,273 5,079 Capital deployed 70,369 68,186 85,882 93, ,241 Net debt No. of shares (m) 41,466 34,768 43,962 43,439 39,633 Net debt/equity (x) W C turn (days) Book value (`/sh) Fig 3 Cash-flow statement (`m) PAT 2,596 4,445 7,330 12,083 14,507 + Non-cash items 3,796 7,145 8,288 9,117 10,029 Cash profit 6,393 11,591 15,618 21,200 24,536 - Incr./(decr.) in WC 8,076-8,598 5,028 5,672 6,504 Operating cash-flow -1,684 20,188 10,590 15,528 18,031 - Capex 56,666 12,395 20,000 14,000 12,000 Free cash-flow -58,349 7,794-9,410 1,528 6,031 - Dividend 890 1,176 2,028 2,205 2,425 + Equity raised Debt raised 33,416-5,311 10,000-3,000-3,000 - Investments Misc. items -27, ,100-1, Net cash-flow 1,025 1, , Op. cash & bank bal. 3,532 4,557 5,944 6,750 4,273 Cl. Cash & bank bal. 4,557 5,944 6,750 4,273 5,079 Fig 4 Ratio `256 P/E (x) P/B (x) EV/EBITDA (x) RoE (%) RoCE (%) Dividend yield (%) Dividend payout (%) Debt to equity (x) Core P/E (x) Cash P/E (x) EV/sales (x) Inventory days Receivables days Payables days Asset T/O (x) Fig 5 PE band Fig 6 EBITDA margin trend x 22x (%) x x 13x 10x Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 FY08 FY09 FY10 FY11 FY12 FY13 FY14e FY15e Source: Bloomberg, Anand Rathi Research Anand Rathi Research 22

60 India I Equities Auto Components Result Preview 7 April 2014 Exide Industries Near term bleak; Sell Key takeaways Weak demand. Exide Industries (Exide) has suffered a decline in its revenues in 9MFY14 due to weak automotive demand from both OEMs as well as the replacement segment. Demand in the industrial segment has also been sluggish. While the company had hiked prices in 1H, a part of this had to be re-addressed in 3Q as the rupee swung back ~10% from its mid-year lows. Subdued sales. With subdued demand, we expect Exide s revenues to decline 4.7% yoy in 4QFY14. Our EBITDA margin expectation is 14.1% (up 90bps yoy and higher 270bps qoq). The EBITDA margin, while higher on a yoy basis, is unlikely to reach the higher of 1HFY14 as with a lower capacity utilisation, the company would also be facing diseconomies of scale. The only positive aspect for Exide in 9MFY14 has been an improvement in its gross margins, a trend which is likely to be maintained in 4Q as well. Profits decline. With the expectation of lower non-operating income (lower ~37% yoy) and a higher effective tax rate (higher 340bps yoy), we expect Exide s profits to decline 10.4% yoy to `1.3bn. Our take. After outshining in 1HCY13, the company s performance has dimmed in 2HCY14. Management mentioned that cost controls and technological upgrading measures would augur well for the future. However, with ` demand pressures, the near-term outlook is a concern. We maintain a Sell on weak demand, loss of market share and an operating performance weaker than its competitors, with a target of `93. At the CMP, it quotes at 21x FY14e and 19x FY15e standalone earnings. Risks. Market-share gains, OEM demand recovery, a decline in lead price, favourable currency movement. Quarterly results (YE Mar) 4QFY13 4QFY14e % yoy 9MFY13 9MFY14 % yoy Sales (`m) 15,399 14, ,381 43, EBITDA (`m) 2,031 2, ,024 6, EBITDA margin (%) bps bps Interest (`m) Depreciation (`m) Other income (`m) PBT (`m) 2,053 1, ,370 5, Tax (`m) ,607 1, Tax rate (%) bps bps PAT (`m) 1,455 1, ,885 3, Rating: Sell Target Price: `93 Share Price: `122 Key data EXID IN /EXID.BO 52-week high / low `143/ `99 Sensex / Nifty / m average volume US$4.2m Market cap `103.4bn / US$1.72bn Shares outstanding 850m Shareholding pattern (%) Dec 13 Sep 13 Jun 13 Promoters of which, Pledged Free Float Foreign Institutions Domestic Institutions Public Financials (YE Mar) FY14e FY15e Sales (`m) 58,302 62,422 Net profit (`m) 4,930 5,451 EPS (`) Growth (%) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%) Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

61 7 April 2014 Exide Industries Near term bleak; Sell Quick Glance Financials and Valuations Fig 1 Income statement (`m) Net revenues 51,110 60,768 58,302 62,422 71,627 Revenue growth (%) Op. expenses 44,232 52,859 50,075 53,497 61,314 EBIDTA 6,879 7,910 8,228 8,925 10,313 EBITDA margin (%) Interest expenses Depreciation 1,007 1,135 1,246 1,320 1,451 + Other income Extraordinaries Tax 1,840 2,195 2,341 2,565 3,018 Effective tax rate (%) Reported PAT 4,612 5,228 4,861 5,451 6,412 Adjusted PAT 4,612 5,238 4,930 5,451 6,412 PAT growth (%) FDEPS (`/share) FDEPS growth (%) Fig 2 Balance sheet (`m) Share capital Reserves & surplus 29,723 33,386 36,547 40,086 44,373 Net worth 30,573 34,236 37,397 40,936 45,223 Total debt Def. tax liab. (net) Capital employed 31,398 35,212 38,374 41,912 46,200 Net fixed assets 9,932 10,532 11,286 11,965 13,014 Investments 15,546 16,401 19,401 21,401 23,401 Working capital 5,343 7,531 7,166 7,855 9,504 Cash Capital deployed 31,398 35,212 38,374 41,912 46,200 Net Debt No. of shares (m) Net Debt/ Equity (%) WC days Book value (`/sh) Fig 3 Cash-flow statement (`m) PAT 4,612 5,228 4,861 5,451 6,412 + Non-cash items 1,007 1,135 1,246 1,320 1,451 Cash profit 5,618 6,363 6,107 6,771 7,863 - Incr./(Decr.) in WC 62 2, ,649 Operating cash-flow 5,557 4,163 6,473 6,083 6,215 - Capex 1,946 1,735 2,000 2,000 2,500 Free cash-flow 3,611 2,428 4,473 4,083 3,715 - Dividend 1,275 1,360 1,700 1,913 2,125 + Equity raised Debt raised Investments 1, ,000 2,000 2,000 - Misc. items Net cash-flow Op. cash & bank bal Cl. cash & bank bal Fig 4 Ratio `122 P/E (x) P/B (x) EV/EBITDA (x) RoE (%) RoCE (%) Dividend yield Dividend payout (%) Debt to equity (%) Core P/E (x) Cash P/E EV/sales Inventory days Receivables days Payables days Asset Turnover Fig 5 PE band Fig 6 EBITDA margin trend 250 (%) x 26x 21x 16x x 6x Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 FY08 FY09 FY10 FY11 FY12 FY13 FY14e FY15e Source: Bloomberg, Anand Rathi Research Source: LME Anand Rathi Research 24

62 India I Equities Auto Components Result Preview Change in Estimates Target Reco 7 April 2014 Bharat Forge Export boost; Hold Key takeaways Tonnage to grow on low base. Bharat Forge s production tonnage is expected to grow 15% yoy during 4QFY14 on a lower base of the previous year, when the company faced shrunken demand in India and Europe. Qoq, the trajectory is expected to be flat. At home, continued slowdown in M&H CVs and lower non-auto offtake have hit sales, but higher exports, along with better rupee realisation would boost it. We are optimistic about the company s long-term strategy to become a diversified forgings-parts manufacturer as well as strong US demand in FY13, but believe these will not suffice to counter stagnation in domestic revenue. Standalone profitability to increase. We expect standalone income to grow 25.5% yoy, to `8.5bn. We expect a sequential reduction of 60bps in the EBITDA margin, to 25.2%, and a 50.7% yoy growth in EBITDA. EBITDA per ton is expected to be 31% higher yoy. Our profit expectation is `896m, a 78.9% yoy growth on a depressed base. Subsidiaries too expected to do well. As in 2Q and 3QFY14, Bharat Forge s wholly-owned subsidiaries are expected to do well, boosted by strong demand from Europe. The key would be to sustain the momentum into CY14, which may prove to be difficult. Our take. As the company largely depends on M&H CVs, the ongoing slowdown in the segment could weigh on its results. Favourable currency movement, ` though, is a positive, together with a better product mix. On short-to medium-term concerns, we retain Hold on the stock. It trades at 26.x FY14e and 21.3x FY15e consolidated EPS. Risks. Downside: Slowdown in execution, drop in US sales. Upside: Quicker-than-expected CV recovery, improved overseas demand. Standalone Quarterly results (YE Mar) 4QFY13 4QFY14e % yoy 9MFY13 9MFY14 % yoy Sales (`m) 6,747 8, ,766 24, EBITDA (`m) 1,418 2, ,719 6, EBITDA margin (%) bps bps Interest (`m) ,200 1, Depreciation (`m) ,694 1, Other income (`m) PBT (`m) 744 1, ,661 4, Tax (`m) ,106 1, Tax rate (%) bps bps Adjusted Profit (`m) ,484 2, Rating: Hold Target Price: `454 Share Price: `425 Key data BHFC IN / BRFG.BO 52-week high / low `431 / `186 Sensex / Nifty / m average volume US$2.1m Market cap `98.93bn / US$1.6bn Shares outstanding 232.8m Shareholding pattern (%) Dec 13 Sep 13 Jun 13 Promoters of which, Pledged Free Float Foreign Institutions Domestic Institutions Public Cons Financials (YE Mar) FY14e FY15e Sales (`m) 63,088 69,085 Net profit (`m) 3,715 4,655 EPS (`) Growth (%) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%) Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

63 7 April 2014 Bharat Forge Export boost; Hold Quick Glance Financials and Valuations Fig 1 Income statement (`m) Net revenues 62,791 57,022 63,088 69,085 80,526 Revenue growth (%) Op. expenses 52,830 49,328 52,847 57,200 66,461 EBIDTA 9,961 7,694 10,240 11,886 14,065 EBITDA margin (%) Interest expenses 1,837 1,908 1,945 1,790 1,723 - Depreciation 3,019 3,360 3,780 4,045 4,328 + Other income 893 1,126 1,284 1,336 1,389 - Extraordinary items Tax 1,796 1,728 2,204 2,733 3,479 Effective tax rate (%) Reported Profit bef MI 4,202 2,021 3,596 4,653 5,924 Adjusted Profit 4,130 2,337 3,715 4,655 5,926 Adj. Profit growth (%) Adj. FDEPS (`/share) Adj. FDEPS growth (%) Fig 2 Balance sheet (`m) Share capital Reserves & surplus 21,437 22,098 24,998 28,702 33,677 Net worth 21,903 22,564 25,463 29,168 34,143 Total debt 27,608 26,745 25,245 24,245 23,245 Def. tax liab. (net) 2,843 2,988 3,113 3,238 3,363 Capital employed 52,353 52,296 53,821 56,650 60,750 Net fixed assets 31,652 35,423 35,642 36,597 37,269 Investments 3,870 4,160 6,160 7,160 8,160 Net working capital 10,113 7,161 9,010 10,874 13,620 Cash and bank bal. 6,718 5,554 3,009 2,020 1,702 Capital deployed 52,353 52,296 53,821 56,650 60,750 No. of shares (m) Net debt 20,890 21,191 22,235 22,225 21,542 Net debt / Equity WC turn days Book value (`/sh) Fig 3 Cash-flow statement (`m) Reported Profit 4,130 2,476 3,715 4,655 5,926 + Depreciation 3,019 3,360 3,780 4,045 4,328 Cash profit 7,149 5,836 7,495 8,701 10,254 - Incr./(decr.) in WC 1,919-2,953 1,849 1,864 2,746 Operating cash-flow 5,230 8,789 5,646 6,837 7,508 - Capex 8,215 7,131 4,000 5,000 5,000 Free cash-flow -2,985 1,657 1,646 1,837 2,508 - Dividend Equity raised Debt raised 8, ,500-1,000-1,000 - Investments 1, ,000 1,000 1,000 - Misc. items Net cash-flow 2,753-1,164-2, Op. cash & bank bal. 3,964 6,718 5,554 3,009 2,020 Cl. cash & bank bal. 6,718 5,554 3,009 2,020 1,702 Fig 4 Ratio `425 P/E (x) P/B (x) EV/EBITDA (x) RoE (%) RoCE (%) Dividend yield (%) Dividend payout (%) Debt to equity (%) Core P/E (x) Cash P/E EV/sales Inventory days Receivables days Payables days Asset Turnover Fig 5 PE band Fig 6 EBITDA margin trend (%) x 30x 26x 22x 18x 14x BHFC Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 FY08 FY09 FY10 FY11 FY12 FY13 FY14e FY15e Source: Bloomberg, Anand Rathi Research Anand Rathi Research 26

64 India I Equities Auto Components Result Preview Change in Estimates Target Reco 72 April 2014 Amara Raja Batteries Replacement demand benefit; Buy Key takeaways Decent performance likely in 4QFY14. Amara Raja Batteries (ARB) is expected to report decent performance in 4QFY14 on its sustained leadership in the telecom and UPS segments as well as replacement demand. This will offer some stability to the automotive segment. We expect 9.4% yoy sales growth, to `8.8bn, and 20.1% yoy EBITDA growth, to `1.3bn; EBITDA margin is expected to be 15.3% (lower 210bps qoq, higher 140bps yoy). Backed by decent EBITDA, adjusted profit growth is expected to be 41.6% yoy, to `842m. Auto replacement, industrials drive growth. As in 2Q and 3QFY14, ARB s revenue growth in 4QFY14 too is expected to be driven by doubledigit growth in auto-replacement demand and the industrial segment. However, auto OEM and home-ups trading businesses is expected to be sluggish due to lower auto demand and mild summer/good monsoons, respectively. ARB s enhanced two-wheeler capacities would not only help it grow its OEM business in this segment, but also tap replacement demand. The expanded capacities for medium and large VRLA batteries are also expected to commence operations in 4Q. Our take. Competitive intensity in the industry is likely to increase with continued weakness in OEM demand. However, with a good product range, greater replacement exposure and decent industrial demand, ARB could outperform peers in the auto-ancillary segment. The stock had stagnated in 1HCY13 after a re-rating in CY12 and has, thereafter, put up a better performance. We maintain Buy, with target price of `427. At the ruling price, it trades at 15.7x FY15e EPS. Risks. Keener competition, input cost rise, valuations at a substantial premium to its past five-year average of 9.1x. Standalone Quarterly results (YE Mar) 4QFY13 4QFY14e % yoy / bps 9MFY13 9MFY14 % yoy Sales (`m) 8,038 8, ,717 25, EBITDA (`m) 1,119 1, ,593 4, EBITDA margin (%) bps bps Interest (`m) Depreciation (`m) Other income (`m) PBT (`m) 922 1, ,296 4, Tax (`m) ,025 1, Tax rate (%) bps bps Adjusted Profit (`m) ,334 2, Rating: Buy Target Price: `427 Share Price: `391 Key data AMRJ IN / AMAR.BO 52-week high / low `407/ `208 Sensex / Nifty / m average volume US$1.8m Market cap `66.69bn / US$1.11bn Shares outstanding 170.8m Shareholding pattern (%) Dec 13 Sep 13 Jun 13 Promoters of which, Pledged Free Float Foreign Institutions Domestic Institutions Public Financials (YE Mar) FY14e FY15e Sales (`m) 34,434 39,469 Net profit (`m) 3,716 4,267 EPS (`) Growth (%) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%) Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

65 7 April 2014 Amara Raja Batteries Replacement demand benefit; Buy Quick Glance Financials and Valuations Fig 1 Income statement (`m) Net revenues 23,674 29,811 34,434 39,469 45,075 Revenue growth (%) Op. expenses 20,134 25,099 28,712 32,891 37,608 EBIDTA 3,540 4,712 5,722 6,578 7,467 EBITDA margins (%) Interest Depreciation Other income Extraordinaries & others Tax 1,036 1,351 1,689 1,917 2,174 Effective tax rate (%) Reported PAT 2,151 2,867 3,716 4,267 4,838 Adjusted PAT 2,151 2,928 3,716 4,267 4,838 PAT growth (%) Adj. FDEPS (`/share) Adj, FDEPS growth (%) Fig 2 Balance sheet (`m) Share capital Reserves & surplus 8,064 10,427 13,544 17,172 21,310 Net worth 8,235 10,598 13,714 17,342 21,481 Total debt Def. tax liab. (net) Capital employed 9,310 11,674 14,816 18,469 22,632 Net fixed assets 3,861 4,618 6,613 7,869 8,510 Investments ,511 1,511 1,511 Working capital 2,996 2,787 4,288 5,432 6,661 Cash 2,292 4,108 2,403 3,657 5,950 Capital deployed 9,310 11,674 14,816 18,469 22,632 Net debt -1,437-3,227-1,522-2,776-5,069 No. of shares (m) Net debt/equity (x) W C turn (days) Book value (`/sh) Fig 3 Cash-flow statement (`m) PAT 2,151 2,867 3,716 4,267 4,838 + Non-cash items Cash profit 2,615 3,528 4,346 5,012 5,696 - Incr./(decr.) in WC ,491 1,133 1,219 Operating cash-flow 3,152 3,776 2,855 3,879 4,477 - Capex 799 1,418 2,625 2,000 1,500 Free cash-flow 2,353 2, ,879 2,977 - Dividend Equity raised Debt raised Investments 0 0 1, Misc. items Net cash-flow 1,841 1,816-1,705 1,254 2,292 + Op. cash & bank bal ,292 4,108 2,403 3,657 Cl. Cash & bank bal. 2,292 4,108 2,403 3,657 5,950 Fig 4 Ratio `391 P/E (x) P/B (x) EV/EBITDA (x) RoE (%) RoCE (%) Dividend yield (%) Dividend payout (%) Debt to equity (x) Core P/E (x) Cash P/E (x) EV/sales (x) Inventory days Receivables days Payables days Asset T/O (x) Fig 5 P/E band Fig 6 Trend in EBITDA margin x AMRJ 14.0x 11.0x 8.0x x Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar x 12 FY08 FY09 FY10 FY11 FY12 FY13 FY14e FY15e Source: Bloomberg, Anand Rathi Research Anand Rathi Research 28

66 India I Equities Auto Components Result Preview Change in Estimates Target Reco 72 April 2014 Apollo Tyres Another good quarter ahead; Buy Key takeaways 4Q stable for India operations. Apollo Tyres domestic operation is expected to continue to grow decently, backed by stable EBITDA margin and sanguine commodity costs. We expect 11.2% yoy revenue growth, to `22.6bn, with 11.8% EBITDA margin (lower 30bps yoy, 60bps qoq). Replacement demand growth is likely to be good. Our EBITDA growth expectation is 9% yoy. We expect 17.1% yoy profit growth, to `1bn. Consolidated profit grows faster. On a lower base, we expect a good 10.4% yoy revenue growth in consolidated operations. While demand recovery may not be visible in the consolidated operations, the shift to a more profitable product mix would help. Our EBITDA margin expectation is 12.4% (up 70bps yoy, lower 250bps qoq). We expect EBITDA to grow 16.8% yoy. We expect 37.5% yoy profit growth to `1.7bn. Cooper acquisition overhang over. The proposed Cooper acquisition was a near-term overhang. With recent events now clearing the potential financial burden that a leveraged buyout posed, the outlook is much brighter. The only threat remains from the possibility of penal break-up fees being imposed by the courts. In our view, given the nature of the break-up, this seems unlikely. Our take. We maintain Buy on continued strong financial performance of the company. While future expansion plans may include overseas capex or another acquisition, so long as the scale is not as big as Cooper, it would not pose a severe threat. Triggers ahead include recovery in replacement and OEM demand, together with rise in supply of Vredestein branded tyres from India and lower rubber prices. At CMP, the stock is trading at 9.7x FY14e EPS and 9.2x FY15e EPS. Our target price is at 9x earnings. Risks. Rise in rubber prices, sustained low demand, unfavourable forex movements. Quarterly results (YE Mar) 4QFY13 4QFY14e % yoy 9MFY13 9MFY14 % yoy Sales (`m) 30,378 33, , , EBITDA (`m) 3,559 4, ,008 13, EBITDA margin (%) bps bps Interest (`m) ,386 2, Depreciation (`m) 1,198 1, ,768 3, Other income (`m) PBT (`m) 2,227 2, ,360 9, Tax (`m) ,632 2, Tax rate (%) ,064bps bps PAT (`m) 1,249 1, ,708 6, Rating: Buy Target Price: `177 Share Price: `167 Key data APTY IN / APLO.BO 52-week high / low `169 / `55 Sensex / Nifty / m average volume US$0.5m Market cap `84.32bn / US$1.41bn Shares outstanding 504.1m Shareholding pattern (%) Dec 13 Sep 13 Jun 13 Promoters of which, Pledged Free Float Foreign Institutions Domestic Institutions Public Financials (YE Mar) FY14e FY15e Sales (`m) 135, ,115 Net profit (`m) 8,720 9,181 EPS (`) Growth (%) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%) Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

67 7 April 2014 Apollo Tyres Another good quarter ahead; Buy Quick Glance Financials and Valuations Fig 1 Income statement (`m) Net revenues 121, , , , ,000 Revenue growth (%) Op. expenses 109, , , , ,009 EBIDTA 11,661 14,567 18,069 19,099 20,990 EBITDA margins (%) Interest 2,873 3,128 2,998 2,587 2,188 - Depreciation 3,256 3,966 4,338 4,698 5,072 + Other income Extraordinaries & others Tax 1,444 2,448 2,715 3,396 3,931 Effective tax rate (%) Reported PAT 4,099 6,126 9,352 9,181 10,629 Adjusted PAT 4,393 6,013 8,720 9,181 10,629 PAT growth (%) Adj. FDEPS (`/share) Adj. FDEPS growth (%) Fig 2 Balance sheet (`m) Share capital Reserves & surplus 27,831 33,505 42,389 50,985 61,029 Net worth 28,335 34,009 42,893 51,489 61,533 Total debt 28,720 22,816 19,816 16,816 13,816 Def. tax liab. (net) 4,025 4,928 5,128 5,328 5,528 Capital employed 61,081 61,753 67,837 73,633 80,877 Net fixed assets 44,881 46,328 49,790 53,092 56,020 Investments Working capital 14,311 11,532 11,728 13,415 16,891 Cash 1,730 3,348 5,623 6,430 7,270 Capital deployed 61,081 61,753 67,837 73,633 80,877 Net debt No. of shares (m) 26,990 19,469 14,193 10,386 6,546 Net debt/equity (x) W C turn (days) Book value (`/sh) Fig 3 Cash-flow statement (`m) PAT 4,099 6,126 9,352 9,181 10,629 + Non-cash items 3,256 3,966 4,338 4,698 5,072 Cash profit 7,355 10,092 13,690 13,879 15,701 - Incr./(decr.) in WC 3,568-1, ,188 3,876 Operating cash-flow 3,787 11,884 12,943 11,691 11,825 - Capex 11,122 5,313 7,500 8,000 8,000 Free cash-flow -7,335 6,571 5,443 3,691 3,825 - Dividend Equity raised Debt raised 3,918-5,904-3,000-3,000-3,000 - Investments Misc. items -3,537-1, Net cash-flow ,617 2, Op. cash & bank bal. 1,909 1,730 3,348 5,623 6,430 Cl. Cash & bank bal. 1,730 3,348 5,623 6,430 7,270 Fig 4 Ratio `167 P/E (x) P/B (x) EV/EBITDA (x) RoE (%) RoCE (%) Dividend yield (%) Dividend payout (%) Debt to equity (x) Core P/E (x) Cash P/E (x) EV/sales (x) Inventory days Receivables days Payables days Fixed asset T/O (x) Fig 5 PE band Fig 6 Trend in EBITDA margin (%) x 9x APTY 7x 5x x x 0 8 Mar-09 Jul-09 Nov-09 Mar-10 Jul-10 Nov-10 Mar-11 Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Mar-13 Jul-13 Nov-13 Mar-14 FY08 FY09 FY10 FY11 FY12 FY13 FY14e FY15e Source: Bloomberg, Anand Rathi Research Anand Rathi Research 30

68 India I Equities Auto Components Result Preview Change in Estimates Target Reco 7 April 2014 Wabco India Long-term bright; Buy Rating: Buy Target Price: `2,101 Share Price: `1,975 Key takeaways Industry slowdown to hit growth. We expect revenue growth of 19.9% yoy for Wabco India (Wabco), to `2.9bn. Growth would be hit by the ongoing slump in M&H CV sales (down ~20% yoy in 4Qe). Revenue growth ahead would be buoyed into positive territory by more exports (commencement of the plant at Mahindra World City), sales of spares and software. Recovery in the M&H CV cycle is likely only in 2HFY15. Restrained operating performance. We expect EBITDA margin to grow 140bps qoq to 15.3% (down 370bps yoy) and EBITDA to dip 3.2%, yoy. Profit could decline 6.7% yoy, to `261m, for the seventh successive quarter. Performance to stabilise soon. 2HFY14 could see Wabco s performance stabilise, although significant improvement is likely only in FY15. We are positive on the company for the long term, as it would be a key beneficiary of the recovery in the CV cycle. Increased exports, potential regulatory changes and good aftermarket potential add to the positives. Wabco Holdings, the parent, seeks to make Wabco an R&D hub for its global operations. Our take. 3QFY14 performance continued to be weak for Wabco. In the near term, the ongoing slowdown in CVs and Wabco s heavy dependence on M&H CVs would weigh on its results. Hence, we lower our estimates to factor in the ongoing decline in M&HCV sales. However, from a long-term perspective, we are optimistic about the company, as it would be a key beneficiary of the recovery in the CV cycle, with mounting exports and good aftermarket potential adding to the positives. Wabco Holdings, the parent, seeks to make Wabco an R&D hub for its global operations. The possibility of implementation of mandatory ABS fitment into M&H CVs is an additional positive. We maintain Buy. Risks. Above-expected CV slowdown, keener competition, higher input costs, delay in ramp-up of exports. Key data WIL IN / WABC.BO 52-week high / low `2094 / `1250 Sensex / Nifty / m average volume US$0.2m Market cap `37.36bn / US$622.7m Shares outstanding 19m Shareholding pattern (%) Dec 13 Sep 13 Jun 13 Promoters of which, Pledged Free Float Foreign Institutions Domestic Institutions Public Financials (YE Mar) FY14e FY15e Sales (`m) 10,881 13,750 Net profit (`m) 1,108 1,476 EPS (`) Growth (%) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%) Quarterly results (YE Mar) 4QFY13 4QFY14e % yoy 9MFY13 9MFY14 % yoy Sales (`m) 2,445 2, ,215 7, EBITDA (`m) ,477 1, EBITDA margin (%) Interest (`m) bps 0 1 1,241.0bps Depreciation (`m) Other income (`m) PBT (`m) ,448 1, Tax (`m) Tax rate (%) bps bps PAT (`m) , Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

69 7 April 2014 Wabco India Long-term bright; Buy Quick Glance Financials and Valuations Fig 1 Income statement (`m) Net revenues 10,457 9,659 10,881 13,750 17,176 Revenue growth (%) Op. expenses 8,257 7,719 9,265 11,419 14,085 EBIDTA 2,199 1,940 1,616 2,331 3,092 EBITDA margin (%) Interest expenses Depreciation Other income Tax Extraordinaries Effective tax rate (%) Reported PAT 1,534 1,308 1,108 1,476 1,991 Adjusted PAT 1,534 1,308 1,108 1,476 1,991 PAT growth (%) FDEPS (`/share) FDEPS growth (%) Fig 2 Balance sheet (`m) Share capital Reserves & surplus 5,196 6,393 7,369 8,691 10,528 Net worth 5,291 6,488 7,464 8,786 10,623 Total debt Def. tax liab. (net) Capital employed 5,409 6,605 7,581 8,903 10,740 Net fixed assets 2,430 2,889 3,176 3,528 3,941 Investments Working capital 1,928 2,470 2,902 3,751 4,753 Cash ,149 1,169 1,492 Capital deployed 5,409 6,605 7,581 8,903 10,740 Net Debt -1,042-1,246-1,503-1,624-2,046 No. of shares (m) Net Debt/Equity (%) W C turn (days) Book value (`/sh) Fig 3 Cash-flow statement (`m) PAT 1,534 1,308 1,108 1,476 1,991 + Non-cash items Cash profit 1,691 1,525 1,421 1,824 2,378 - Incr./(Decr.) in WC ,001 Operating cash-flow 1, ,377 - Capex Free cash-flow Dividend Equity raised Debt raised Investments Misc. items Net cash-flow Op. cash & bank bal ,149 1,169 Cl. cash & bank bal ,149 1,170 1,492 Fig 4 Ratio `1,975 P/E (x) P/B (x) EV/EBITDA (x) RoE (%) RoCE (%) Dividend yield Dividend payout (%) Debt to equity (x) Core P/E (x) Cash P/E EV/sales Inventory days Receivables days Payables days Fixed Asset T/O Fig 5 PE band Fig 6 EBITDA margin trend 2,300 2,100 1,900 1,700 1,500 1,300 1, Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 27x 24x 21x 18x 15x 12x FY08 FY09 FY10 FY11 FY12 FY13 FY14e FY15e Source: Bloomberg, Anand Rathi Research Anand Rathi Research 32

70 India I Equities Auto Components Result Preview Change in Estimates Target Reco 7 April 2014 SKF India Expected demand revival; healthy long-term bet; Hold Rating: Hold Target Price: `812 Share Price: `816 Key takeaways 1QCY14 sales to grow 10%. We expect SKF India s 1QCY14 revenues to be `5.9bn (up 9.8% yoy). This growth would have come on last year s lower base. Curtailed demand continues in both its key target markets, industrials and automobiles. We expect greater revenue from exports and from the auto division. Amidst these adversities, the company is focusing on tightening its working-capital requirement. We expected demand to pick up in CY14. Margin expected to improve 47bps yoy. In the past few quarters, despite slowing revenue growth, the margin fall has been arrested as the company has been able to pass on the rise in raw-material cost. With facilities still underutilized, the margin will now be contained, primarily due to lower fixed-cost absorption. We expect the 1QCY14 EBIDTA margin to come at 11.5%, 47bps higher yoy. This improvement would be due to lower employee costs and other expenditure. Profit expected to grow 12.5%. We expect profit to grow 12.5% yoy, to `458m, down 5% qoq. Other income is expected to be `150m, 2% higher than what it was in 1QCY13. Tightening working capital. In the tough situation today, the company is focusing on tightening working capital required. It has been generating strong operating cash-flows over the years. We expect revenue and profit CAGRs over CY12-14 of 9% each. ` Our take. A slowdown is evident in the industrial and automobile segments. A debt-free company (`3.7bn in cash at end-cy13), it has generated strong operating cash-flows over the years. We value the stock at a one-year forward PE of 16x CY15e, at a price target of `812 (earlier `761). With no short-term trigger, the long-term story is unharmed. Risks. Slowdown in industrial activity, auto sales; commodity price fluctuations and increase in imports. Key data SKF IN / SKFB.BO 52-week high / low 835/ 432 Sensex / Nifty / m average volume 0.1mn Market cap 42.9bn Shares outstanding 52.7m Shareholding pattern (%) Dec 13 Sep 13 Jun 13 Promoters of which, Pledged Free Float Foreign Institutions Domestic Institutions Public Financials (YE Dec) FY14e FY15e Sales (`m) 26,223 30,146 Net profit (`m) 2,323 2,677 EPS (`) Growth (%) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%) (37.6) (37.7) Quarterly results (YE Dec) 1QCY13 1QCY14e % yoy CY12 CY13 % yoy Sales (`m) 5,383 5, ,276 22, EBITDA (`m) ,584 2, EBITDA margin (%) bps (10)bps Interest (`m) Depreciation (`m) Other income (`m) (7.5) PBT (`m) (10.6) Tax (`m) (7.2) Tax rate (%) (157)bps bps PAT (`m) ,901 1,667 (12.3) Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

71 7 April 2014 SKF India - Expected demand revival; healthy long-term bet; Hold Quick Glance Financials and Valuations Fig 1 Income statement (`m) Year-end: Mar CY11 CY12 CY13 CY14e CY15e Net sales 24,167 22,276 22,749 26,223 30,146 Sales growth (%) 16.8 (7.8) Op. expenses 15,737 14,415 14,329 16,652 19,143 EBIDTA 2,807 2,584 2,614 3,016 3,467 EBITDA margins (%) Interest (339) - - (564) (648) - Depreciation Other income Tax 1, ,203 1,386 Effective tax rate (%) Reported PAT 2,085 1,901 1,667 2,323 2,677 +/- Minority interest Adjusted PAT 2,085 1,901 1,667 2,323 2,677 Adj. FDEPS (`/sh) Adj. FDEPS growth (%) 17.8 (8.8) (12.3) DPS (`/share) Fig 2 Balance sheet (`m) Year-end: Mar CY11 CY12 CY13 CY14e CY15e Share capital Reserves & surplus 9,585 11,026 12,228 13,872 15,870 Shareholders fund 10,112 11,554 12,755 14,399 16,398 Debt Minority interests Deferred Tax Liab (net) Capital employed 10,128 11,637 12,795 14,440 16,438 Net Fixed assets 3,619 4,072 4,011 4,595 4,742 Working capital 4,265 4,496 5,027 4,432 5,518 Cash 2,244 3,070 3,758 5,413 6,178 Capital deployed 10,128 11,637 12,795 14,440 16,438 Net Debt (2,244) (3,070) (3,758) (5,413) (6,178) No. of shares (m) Net Debt/Equity (%) (22.2) (26.6) (29.5) (37.6) (37.7) W C turn (days) Book Value (`/share) Fig 3 Cash-flow statement (`m) Year-end: Mar CY11 CY12 CY13 CY14e CY15e PAT 2,085 1,901 1,667 2,323 2,677 +Non-Cash Items Cash profit 2,456 2,404 2,118 2,639 3,030 - Incr./(Decr.) in WC 1, (595) 1,086 Operating cash-flow 1,396 2,174 1,587 3,234 1,944 -Capex Free cash-flow 585 1,285 1,154 2,334 1,444 -Dividend Equity raised (0) 3 (3) (0) - + Others Debt raised (0) Investments Net cash-flow , Opening cash 2,119 2,244 3,070 3,758 5,413 Closing cash 2,244 3,070 3,758 5,413 6,178 Fig 4 Ratio `816 Year-end: Mar CY11 CY12 CY13 CY14e CY15e P/E (x) Cash P/E (x) EV/EBITDA (x) EV/Sales (x) P/B (x) RoAE (%) RoACE (%) Dividend yield (%) Dividend payout (%) Debt/Equity (x) Receivable days Inventory days Payable days Working capital days Fixed asset T/O (x) Fig 5 PE band Fig 6 Segment-wise revenue break-up Source: Bloomberg, Anand Rathi Research Anand Rathi Research 34

72 India I Equities Auto Components Result Preview Change in Estimates Target Reco 7 April 2014 Swaraj Engines Tractors to propel growth; Buy Key takeaways Tractors do well. Mahindra & Mahindra s (M&M) tractor volumes were good in 4QFY14, up 11.5% yoy. These were prolific in 9MFY14, growing 21% yoy. Being a key supplier to Swaraj Tractors, Swaraj Engines would also benefit by this robust performance by M&M. In the previous three quarters, Swaraj Engines volume growth has comfortably outpaced that of M&M. We expect this trajectory to sustain in 4Q as well. Higher base in 4Q. Swaraj branded tractors 4Q sales are expected to be good. This would result in 12.7% yoy engine volume growth. We expect 10% revenue growth yoy, to `1.3bn (realisation dip of 2.4%). Our EBITDA margin expectation is 14.9% (60bps higher yoy, 40bps qoq). We expect EBITDA per engine to be 1.3% higher yoy, while profit per engine is expected to be 9.7% lower yoy. Our EBITDA growth expectation is 14.3% yoy. Robust profit growth. Being debt free, and with steady depreciation and non-operating income and a constant tax rate of 31.7%, we expect 1.8% yoy profit growth, to `142m. Our take. Growth would be boosted by sustained recovery in tractor demand. We expect tractors to do well in the long run, led by more scope for productivity, low penetration, need for mechanization and shortage of labour. Higher ` capacity could be a huge fillip. We are positive on the stock and maintain Buy on it, with a price target of `722. At the ruling price, it trades at a PE of 11.8x FY15e earnings. At our target price, it would trade at ~12x Sep 15e EPS. Risks. Commodity price rises, loss of market share by M&M, poor monsoon. Rating: Buy Target Price: `722 Share Price: `675 Key data SWE IN / SWAR.BO 52-week high / low `715 / `382 Sensex / Nifty / m average volume US$0.1m Market cap `8.38bn / US$139.7m Shares outstanding 12.4m Shareholding pattern (%) Dec 13 Sep 13 Jun 13 Promoters of which, Pledged Free Float Foreign Institutions Domestic Institutions Public Financials (YE Mar) FY14e FY15e Sales (`m) 5,750 6,505 Net profit (`m) EPS (`) Growth (%) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%) Quarterly results (YE Mar) 4QFY13 4QFY14e % yoy 9MFY13 9MFY14 % yoy Sales (`m) 1,145 1, ,645 4, EBITDA (`m) EBITDA margin (%) bps bps Interest (`m) Depreciation (`m) Other income (`m) PBT (`m) Tax (`m) Tax rate (%) bps bps PAT (`m) Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

73 7 April 2014 Swaraj Engines Tractors to propel growth; Buy Quick Glance Financials and Valuations Fig 1 Income statement (`m) Net revenues 4,486 4,790 5,750 6,505 7,310 Revenue growth (%) Op. expenses 3,792 4,075 4,896 5,548 6,253 EBIDTA ,057 EBITDA margin (%) Interest expenses Depreciation Other income Tax Extraordinaries Effective tax rate (%) Reported PAT Adjusted PAT PAT growth (%) FDEPS (`/share) FDEPS growth (%) Fig 2 Balance sheet (`m) Share capital Reserves & surplus 1,739 1,813 2,272 2,786 3,355 Net worth 1,863 1,937 2,396 2,910 3,480 Total debt Def. tax liab. (net) Capital employed 1,895 2,001 2,469 2,993 3,573 Net fixed assets ,237 1,313 Investments ,242 Working capital Cash ,051 Capital deployed 1,895 2,001 2,469 2,993 3,573 Net Debt No. of shares (m) -1,508-1,549-1,592-1,809-2,293 Net Debt/ Equity (%) WC days Book value (`/sh) Fig 3 Cash-flow statement (`m) PAT Non-cash items Cash profit Incr./(Decr.) in WC Operating cash-flow Capex Free cash-flow Dividend Equity raised Debt raised Investments Misc. items Net cash-flow Op. cash & bank bal Cl. cash & bank bal ,051 Fig 4 Ratio `675 P/E (x) P/B (x) EV/EBITDA (x) RoE (%) RoCE (%) Dividend yield Dividend payout (%) Debt to equity (%) Core P/E (x) Cash P/E EV/sales Inventory days Receivables days Payables days Asset Turnover Fig 5 PE band Fig 6 EBITDA margin trend x 11x x Swaraj Engines 7x 5x x Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 FY08 FY09 FY10 FY11 FY12 FY13 FY14e FY15e Source: Bloomberg, Anand Rathi Research Anand Rathi Research 36

74 India I Equities Auto Components Result Preview Change in Estimates Target Reco 72 April 2014 Balkrishna Industries Low base beckons; Buy Rating: Buy Target Price: `534 Share Price: `497 Key takeaways Tonnage to improve in 4Q. Balkrishna Industries 1H sales tonnage was 8.2% lower yoy due to demand slowing down in Europe and North America. However, with the low base now catching up, it grew 12.5% yoy in 3Q, and we expect it to be higher 10.8% yoy in 4QFY14. Overall tonnage growth for BI in FY14 would be marginal at 1% yoy. In terms of geographical sales mix, in FY13, Europe constituted 45%, India 9%, North America 25% and the rest of the world 21%, similar to that in FY12. Bhuj plant starts operations. The new plant, at Bhuj, partly commenced operations in Sep 12, and is now in a scale-up mode. 10,000 tons of capacity was available for production in FY13, to be ramped up to 60,000 tons in FY14, to 120,000 tons in FY15 and the full extent of 140,000 tons by FY16. Healthy EBITDA margin. On better yoy sales, we expect revenues to grow 24% yoy, to `9.7bn. Our EBITDA margin expectation is 22.9%, 290bps higher yoy. We expect 32.5% yoy growth in adjusted profit, to `1.1bn. Our take. We are optimistic regarding the company s prospects, though short-term profit growth would be impacted due to an increase in depreciation and interest, post-capex-commissioning. Despite demand pressures, the FY13 and FY14 performances were good. A better product mix is helping counter sluggish revenue growth. The outlook ahead is expected to brighten. Catering to the replacement market, with a strong global, well-diversified distributor network, and an expanding market reach, the company is poised to do better. Factors to look ahead to would be improvement overseas and better demand in emerging markets. We maintain a Buy. BI trades at a PE of 10.8x FY14e and 10x FY15e EPS. Risks. Spike in rubber prices, adverse forex movements, demand dip. Key data BIL IN / BLKI.BO 52-week high / low `513 / `199 Sensex / Nifty / m average volume US$1.2m Market cap `48.0bn / US$800.0m Shares outstanding 96.7m Shareholding pattern (%) Dec 13 Sep 13 Jun 13 Promoters of which, Pledged Free Float Foreign Institutions Domestic Institutions Public Financials (YE Mar) FY14e FY15e Sales (`m) 35,062 40,663 Net profit (`m) 4,451 4,816 EPS (`) Growth (%) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%) Standalone Quarterly results (YE Mar) 4QFY13 4QFY14e % yoy 9MFY13 9MFY14 % yoy Sales (`m) 7,793 9, ,231 25, EBITDA (`m) 1,559 2, ,992 6, EBITDA margin (%) bps bps Interest (`m) Depreciation (`m) , Other income (`m) PBT (`m) 1,341 1, ,012 5, Tax (`m) ,300 1, Tax rate (%) bps bps PAT (`m) 825 1, ,771 3, Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

75 7 April 2014 Balkrishna Industries Low base beckons; Buy Quick Glance Financials and Valuations Fig 1 Income statement (`m) Net revenues 28,200 31,906 35,062 40,663 48,920 Revenue growth (%) Op. expenses 23,142 25,262 26,752 31,432 37,947 EBIDTA 5,058 6,644 8,310 9,230 10,973 EBITDA margins (%) Interest Depreciation 831 1,077 1,670 2,003 2,504 + Other income Extraordinaries & others Tax 1,297 1,794 2,234 2,372 2,714 Effective tax rate (%) Reported PAT 2,482 3,558 4,436 4,816 5,509 Adjusted PAT 2,655 3,597 4,451 4,816 5,509 PAT growth (%) Adj. FDEPS (`/share) Adj. FDEPS growth (%) Fig 2 Balance sheet (`m) Share capital Reserves & surplus 10,608 13,996 18,247 22,859 28,144 Net worth 10,801 14,190 18,440 23,052 28,337 Total debt 16,630 20,636 23,314 21,314 19,314 Def. tax liab. (net) ,148 1,263 1,390 Capital employed 28,056 35,824 42,902 45,629 49,041 Net fixed assets 12,780 22,232 28,063 31,059 31,555 Investments , Working capital 11,380 10,599 11,569 13,436 15,380 Cash 3,574 2,663 1, ,704 Capital deployed 28,056 35,824 42,902 45,629 49,041 Net debt 13,056 17,972 21,522 20,796 17,609 No. of shares (m) Net debt/equity (x) W C turn (days) Book value (`/sh) Fig 3 Cash-flow statement (`m) PAT 2,482 3,558 4,436 4,816 5,509 + Non-cash items 831 1,077 1,670 2,003 2,504 Cash profit 3,313 4,636 6,105 6,820 8,014 - Incr./(decr.) in WC 2,088-2, ,868 1,944 Operating cash-flow 1,225 6,655 5,136 4,952 6,069 - Capex 6,235 10,529 7,500 5,000 3,000 Free cash-flow -5,010-3,874-2, ,069 - Dividend Equity raised Debt raised 10,649 4,006 2,678-2,000-2,000 - Investments 0 7 1, Misc. items 2, Net cash-flow 3, ,275 1,187 + Op. cash & bank bal ,574 2,663 1, Cl. Cash & bank bal. 3,574 2,663 1, ,704 Fig 4 Ratio `497 P/E (x) P/B (x) EV/EBITDA (x) RoE (%) RoCE (%) Dividend yield (%) Dividend payout (%) Debt to equity (x) Core P/E (x) Cash P/E (x) EV/sales (x) Inventory days Receivables days Payables days Fixed Asset T/O (x) Fig 5 PE band Fig 6 Trend in EBITDA Margin (%) 500 (%) BIL 7.75x 6.50x 5.25x 4.00x x 1.50x Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14e FY15e Source: Bloomberg, Anand Rathi Research Anand Rathi Research 38

76 India I Equities Auto Components Result Preview Change in Estimates Target Reco 72 April 2014 Gabriel India Outlook good; Buy Rating: Buy Target Price: `37 Share Price: `32 Key takeaways Weak OEM sales on low demand. Decline in demand across most auto segments have weighed down on Gabriel India s (Gabriel) ytd performance. After robust growth in past three years in autos (22% CAGR), FY13 was subdued (at ~3%) with a weak trend in FY14 as well. However, Gabriel recorded ~3% growth in 1H, and we expect ~9% growth in revenues in FY14 (expectation of 16.7% in 4QFY14), mainly due to business from new two-wheeler customers like Honda Motorcycle, Mahindra Two Wheelers. The proportion of two wheelers in sales has increased from less than 50% in FY13 to ~55% in 9MFY14. EBITDA margin likely to improve. We expect revenue growth of 16.7% yoy to `3.6bn. Our EBITDA margin expectation is 7.9%, 150bps higher yoy, up 90bps qoq. While EBITDA is expected to be 44.2% higher yoy, we expect profit of `167m (31.8% higher yoy). Our take. Gabriel is focused completely on innovation and raising productivity, and reducing costs, working capital and overheads. It has also taken measures to improve the working capital cycle, results of which have begun to show. Debt reduction is also a focus area for the company, where results are now being visible. Additions to the customer base, exports and steady replacement sales are future growth drivers. Despite lower vehicle demand, Gabriel has sustained a decent, > 6% EBITDA margin, which can be boosted further by operating leverage and higher contribution from more profitable segments like exports and replacement. We maintain Buy, with an upgraded target of `37 (at PE of 8x Sep 15e; current PE is 7.8x FY15e). Risks. Inadequate price hikes by OEMs, higher commodity prices, prolonged demand slump. Quarterly results (YE Mar) 4QFY13 4QFY14e % yoy 9MFY13 9MFY14 % yoy Sales (`m) 3,110 3, ,943 9, EBITDA (`m) EBITDA margin (%) bps bps Interest (`m) Depreciation (`m) Other income (`m) PBT (`m) Tax (`m) Tax rate (%) ,949bps bps PAT (`m) Key data GABR IN / GABR.BO 52-week high / low `33/ `16 Sensex / Nifty / m average volume US$0.2m Market cap `4.66bn / US$75.m Shares outstanding 143.7m Shareholding pattern (%) Dec 13 Sep 13 Jun 13 Promoters of which, Pledged Free Float Foreign Institutions Domestic Institutions Public Financials (YE Mar) FY14e FY15e Sales (`m) 13,159 14,600 Net profit (`m) EPS (`) Growth (%) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%) Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

77 7 April 2014 Gabriel India Outlook good; Buy Quick Glance Financials and Valuations Fig 1 Income statement (`m) Net revenues 11,282 12,053 13,159 14,600 16,776 Revenue growth (%) Op. expenses 10,341 11,230 12,252 13,549 15,498 EBIDTA ,051 1,279 EBITDA margins (%) Interest Depreciation Other income Extraordinaries & others Tax Effective tax rate (%) Reported PAT Adjusted PAT PAT growth (%) Adj. FDEPS (`/share) Adj. FDEPS growth (%) Fig 2 Balance sheet (`m) Share capital Reserves & surplus 2,241 2,425 2,797 3,214 3,733 Net worth 2,312 2,569 2,941 3,358 3,876 Total debt 1, Def. tax liab. (net) Capital employed 3,676 3,336 3,683 4,125 4,669 Net fixed assets 2,175 2,618 2,643 2,845 3,115 Investments Working capital 1, ,153 Cash Capital deployed 3,676 3,336 3,683 4,125 4,669 Net debt 1, No. of shares (m) Net debt/equity (x) W C turn (days) Book value (`/sh) Fig 3 Cash-flow statement (`m) PAT Non-cash items Cash profit ,064 - Incr./(decr.) in WC Operating cash-flow 515 1, Capex Free cash-flow Dividend Equity raised Debt raised Investments Misc. items Net cash-flow Op. cash & bank bal Cl. Cash & bank bal Fig 4 Ratio `32 P/E (x) P/B (x) EV/EBITDA (x) RoE (%) RoCE (%) Dividend yield (%) Dividend payout (%) Debt to equity (x) Core P/E (x) Cash P/E (x) EV/sales (x) Inventory days Receivables days Payables days Fixed asset T/O (x) Fig 5 P/E band Fig 6 EBITDA margin trend 50 12x x x 6x Gabriel India 4x x 5 0 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 EBITDA Margin (%) 1QFY13 2QFY13 3QFY13 4QFY13 Source: Bloomberg, Anand Rathi Research Anand Rathi Research 40

78 India I Equities Auto Components Result Preview Change in Estimates Target Reco 7 April 2014 Ceat Valuations no longer inexpensive; Hold Rating: Hold Target Price: `421 Share Price: `396 Key takeaways Robust trajectory to continue. We expect sales tonnage to improve 5.9% yoy, to ~63,000 tons, and revenue to grow 9.4% yoy, to `14.3bn (3.4% yoy growth in realisations). For 4QFY14, we expect EBITDA margin at 11.5%, up 90bps yoy (40bps higher qoq). Our EBITDA growth expectation is 18.1% yoy to `1.6bn. On the lower profit base, we expect standalone profit in 4Q to grow 14.5%, to `697m. Key data CEAT IN / CEAT.BO 52-week high / low `456 / `87 Sensex / Nifty / m average volume US$0.0m Market cap `14.2bn / US$237m Shares outstanding 34.2m Re-rating faster than expected. The re-rating in Ceat s valuations has been rapid, and much faster than expected. While a decent trajectory is likely to be persisted with in terms of financial performance in 4Q as well, a further rerating appears unlikely. Fresh capex plans are also on the anvil. Our take. In 1HFY14, Ceat benefited from lower prices of rubber. However, demand is yet to pick up significantly. The post-monsoon period may see improved offtake in replacement. The company s strategy of pursuing an asset-light model is bearing fruit, as evidenced by the success of its twowheeler tyres. The profitable segments - exports, passenger vehicles and overseas areas - now constitute a greater share of the mix. This explains the improvement in margin profile. The upcoming Bangladesh plant may provide opportunities similar to those provided by Sri Lanka earlier. However, the valuations are no longer as inexpensive post the run-up in the stock price. Hence we maintain a Hold. At the ruling price, the stock trades at ` 5x FY15e EPS. Risks. Downside: Spike in rubber prices, late recovery in truck-tyre replacement demand, high leverage and price wars. Upside: further re-rating of the tyre industry, decline in rubber prices. Standalone Quarterly results (YE Mar) 4QFY13 4QFY14e % yoy 9MFY13 9MFY14 % yoy Sales (`m) 13,106 14, ,640 39, EBITDA (`m) 1,393 1, ,869 4, EBITDA margin (%) bps bps Interest (`m) ,491 1, Depreciation (`m) Other income (`m) PBT (`m) 785 1, , Tax (`m) Tax rate (%) bps bps PAT (`m) , Shareholding pattern (%) Dec 13 Sep 13 Jun 13 Promoters of which, Pledged Free Float Foreign Institutions Domestic Institutions Public Financials (YE Mar) FY14e FY15e Sales (`m) 53,810 60,612 Net profit (`m) 2,649 2,851 EPS (`) Growth (%) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%) Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

79 7 April 2014 Ceat Valuations no longer inexpensive; Hold Quick Glance Financials and Valuations Fig 1 Income statement (`m) Net revenues 44,720 48,815 53,810 60,612 69,700 Revenue growth (%) Op. expenses 42,165 44,570 47,461 53,823 62,208 EBIDTA 2,556 4,245 6,350 6,789 7,493 EBITDA margin (%) Interest expenses 1,922 1,944 1,847 1,865 1,884 - Depreciation ,146 + Other income Extraordinaries Tax ,247 1,341 1,520 Effective tax rate (%) Reported PAT 75 1,064 2,649 2,851 3,229 Adjusted PAT 96 1,341 2,649 2,851 3,229 PAT growth (%) , FDEPS (`/share) FDEPS growth (%) , Fig 2 Balance sheet (`m) Share capital Reserves & surplus 6,185 7,088 9,650 12,213 15,082 Net worth 6,563 7,466 10,009 12,572 15,442 Total debt 10,722 9,396 11,896 13,896 13,896 Def. tax liab. (net) Capital employed 17,510 17,608 22,651 27,214 30,084 Net fixed assets 15,375 15,129 16,378 19,887 20,741 Investments ,687 2,187 2,687 Working capital 1,056 1,219 3,985 4,572 5,485 Cash ,171 Capital deployed 17,510 17,608 22,651 27,214 30,084 Net Debt 9,643 8,136 9,608 11,141 10,038 No. of shares (m) Net Debt/ Equity (%) WC days Book value (`/sh) Fig 3 Cash-flow statement (`m) PAT 75 1,064 2,649 2,851 3,229 + Non-cash items ,146 Cash profit 780 1,845 3,492 3,842 4,375 - Incr./(Decr.) in WC 1, , ,010 Operating cash-flow , ,158 3,365 - Capex 1, ,092 4,500 2,000 Free cash-flow -1, ,470-1,342 1,365 - Dividend Equity raised Debt raised 1,673-1,326 2,500 2, Investments , Misc. items 22-1, Net cash-flow Op. cash & bank bal Cl. cash & bank bal ,171 Fig 4 Ratio `396 P/E (x) P/B (x) EV/EBITDA (x) RoE (%) RoCE (%) Dividend yield Dividend payout (%) Debt to equity (%) Core P/E (x) Cash P/E EV/sales Inventory days Receivables days Payables days Asset Turnover Fig 5 PB band Fig 6 EBITDA-margin trend Ceat 1.20x 0.80x 0.60x 0.40x 0.20x Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 0 FY08 FY09 FY10 FY11 FY12 FY13 FY14e FY15e Source: Bloomberg, Anand Rathi Research Anand Rathi Research 42

80 India I Equities Auto Components Result Preview Change in Estimates Target Reco 7 April 2014 Munjal Showa Growth triggers in place; Buy Rating: Buy Target Price: `102 Share Price: `90 Key takeaways Two-wheeler demand average. Hero MotoCorp., Munjal Showa s (MS) key customer, had a decent 4QFY14; on a lower base, it in fact reported yoy growth for a third successive quarter (yoy decline for preceding four quarters). Two-wheeler sales were up 3.9% yoy. While the demand environment should improve ahead, lower excise duty until June 30 would be an added advantage. Benefit to trickle in for MS. In 4QFY13, while the overall automotive demand continued to be weak. MS key customers - Hero MotoCorp. and Maruti Suzuki - reported a decent performance. Hence, we expect MS revenue to grow 12.3% yoy. We expect its EBITDA margin to come at 8.3% (20bps higher yoy, and up 100bps qoq). This would result in 14% yoy EBITDA growth. As a result, adjusted profit would grow a marginal 9.3% yoy, to `244m. Provision made for wage hike. The company s wage-settlement agreement with its workers and staff increments are due for renewal. While negotiations are ongoing, the company has provided `54.73m towards increments for 1HFY14, based upon its estimates. This has also had the effect of lowering the EBITDA margin, along with reducing operating leverage. Our take. Although key customers still face demand pressures, growth ahead would be driven by non-hmc customers. Positives ahead are inexpensive valuations and more revenue from a diversified customer base. We reiterate ` Buy, with an upgraded target of `102, based upon 5x FY15e (~10% premium to its past five-year average). At the current price, the stock trades at PE of just 4.9x FY14e and 4.4x FY15e earnings. Risks. Sustained slump in motorcycle sales, rise in commodity prices and inadequate price hikes allowed by OEMs. Key data MJS IN / MNJL.BO 52-week high / low `91 / `52 Sensex / Nifty / m average volume US$0.03m Market cap `3.59bn / US$59.8m Shares outstanding 40m Shareholding pattern (%) Dec 13 Sep 13 Jun 13 Promoters of which, Pledged Free Float Foreign Institutions Domestic Institutions Public Financials (YE Mar) FY14e FY15e Sales (`m) 16,278 18,517 Net profit (`m) EPS (`) Growth (%) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%) Quarterly results (YE Mar) 4QFY13 4QFY14e % yoy 9MFY13 9MFY14 % yoy Sales (`m) 3,975 4, ,850 12, EBITDA (`m) EBITDA margin (%) bps bps Interest (`m) Depreciation (`m) Other income (`m) PBT (`m) Tax (`m) Tax rate (%) bps bps PAT (`m) Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

81 7 April 2014 Munjal Showa Growth triggers in place; Buy Quick Glance Financials and Valuations Fig 1 Income statement (`m) Net revenues 15,569 15,824 16,278 18,517 21,207 Revenue growth (%) Op. expenses 14,342 14,760 15,139 17,221 19,722 EBIDTA 1,227 1,064 1,139 1,296 1,484 EBITDA margin (%) Interest expenses Depreciation Other income Extraordinaries Tax Effective tax rate (%) Reported PAT Adjusted PAT PAT growth (%) FDEPS (`/share) FDEPS growth (%) Fig 2 Balance sheet (`m) Share capital Reserves & surplus 2,482 2,948 3,542 4,197 4,983 Net worth 2,562 3,028 3,622 4,277 5,063 Total debt Def. tax liab. (net) Capital employed 3,435 3,491 3,781 4,436 5,222 Net fixed assets 2,562 2,534 2,737 3,389 4,005 Investments Working capital Cash Capital deployed 3,435 3,491 3,781 4,436 5,222 Net Debt No. of shares (m) Net Debt/ Equity (%) WC days Book value (`/sh) Fig 3 Cash-flow statement (`m) PAT Non-cash items Cash profit ,052 1,163 1,330 - Incr./(Decr.) in WC Operating cash-flow 515 1, ,099 1,252 - Capex ,000 1,000 Free cash-flow Dividend Equity raised Debt raised Investments Misc. items Net cash-flow Op. cash & bank bal Cl. cash & bank bal Fig 4 Ratio `90 P/E (x) P/B (x) EV/EBITDA (x) RoE (%) RoCE (%) Dividend yield Dividend payout (%) Debt to equity (%) Core P/E (x) Cash P/E EV/sales Inventory days Receivables days Payables days Asset Turnover Fig 5 PE band Fig 6 EBITDA margin trend 180 (%) 8x x 120 6x 7 90 Munjal Showa 5x 4x x Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 FY08 FY09 FY10 FY11 FY12 FY13 FY14e FY15e Source: Bloomberg, Anand Rathi Research Anand Rathi Research 44

82 India I Equities Auto Components Result Preview Change in Estimates Target Reco 7 April 2014 NRB Bearings Onerous domestic market, export-led growth; Buy Rating: Buy Target Price: `63 Share Price: `50 Key takeaways Domestic sales continue to slow down, exports expected to grow. We expect NRB Bearings sales to have risen 7% yoy, to `1.5bn, despite a decline in off take in the domestic auto segment (OEM clients). Exports would have grown yoy at a healthy pace on account of the company s export-focused strategy. Margin set to improve 291bps. The EBITDA margin is expected to improve 291bps yoy, chiefly due to higher volumes. Ahead, with an expected rise in volumes of high-margin exports, the margin is expected to have expanded to over 17%. The costs involved in exports at present are high. The decline in the domestic business was somewhat counter-balanced by more exports. The long-term focus is now on increasing export revenue. In FY14 exports are anticipated to have clocked `2bn (FY13: `1.5bn). Short-term outlook weak; exports, the silver lining. While revenue and EBITDA growth would have continued in 4QFY14, greater revenue from new export clients should pick up, and the domestic business, which has bottomed out, start to inch up. Economic growth is expected to improve in the next few quarters, auguring well for the company. Besides, its exports business continues to gain size. This could improve margins and reduce working capital required. For 4QFY14 we expect PAT to have grown 5% yoy, to `106m. Our ` take. With brightening prospects for the economy and NRB too expected to look up, we maintain a Buy (recommendation). The stock trades at 8.6x one-year forward EPS and 4.8x EV/EBITDA, based on FY15e earnings. We revise our target price upwards, to `63, based on 10x Sep 15e. Risks. Keener competition, higher input costs, threat from importers. Key data NRBBR IN / NBEA.BO 52-week high / low 53/26.5 Sensex / Nifty / m average volume 0.1m Market cap 4.79bn Shares outstanding 96.9m Shareholding pattern (%) Dec 13 Sep 13 Jun 13 Promoters of which, Pledged Free Float Foreign Institutions Domestic Institutions Public Financials (YE Mar) FY15e FY16e Sales (`m) 7,102 7,897 Net profit (`m) EPS (`) Growth (%) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%) Quarterly results (YE Mar) 4QFY13 4QFY14e % yoy 9M FY13 9MFY14 % yoy Sales (`m) 1,445 1, ,350 4, EBITDA (`m) (4.5) EBITDA margin (%) bps (86) bps Interest (`m) (12.9) Depreciation (`m) Other income (`m) (9.3) PBT (`m) (14.4) Tax (`m) Tax rate (%) ,473 bps ,474 bps PAT (`m) (29.4) Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

83 7 April 2014 NRB Bearings Onerous Domestic Market, Export-led growth; Buy Quick Glance Financials and Valuations Fig 1 Income statement (` m) Net sales 5,611 5,926 6,143 7,102 7,897 Sales growth (%) Op. expenses 4,456 4,916 5,138 5,832 6,485 EBIDTA 1,155 1,010 1,005 1,270 1,411 EBITDA margins (%) Interest Depreciation Other income Tax Effective tax rate (%) Reported PAT /- Minority interest Adjusted PAT Adj. FDEPS (`/sh) Adj. FDEPS growth (%) DPS (`/share) Fig 2 Balance sheet (` m) Share capital Reserves & surplus 2,144 1,785 2,020 2,394 2,810 Shareholders fund 2,457 2,082 2,316 2,691 3,107 Debt 2,575 2,601 2,351 2,251 2,151 Minority interests Deferred Tax Liab (net) Capital employed 5,040 4,700 4,685 4,959 5,276 Net Fixed assets 2,519 2,380 2,052 1,800 1,531 Investments Working capital 1,964 2,287 2,324 2,686 3,001 Cash Capital deployed 5,040 4,700 4,685 4,959 5,276 Net Debt Net Debt/Equity (%) W C turn (days) Book Value (`/sh) Fig 3 Cash-flow statement (` m) PAT Non-Cash Items Cash profit ,019 - Incr./(Decr.) in WC Operating cash-flow Capex Free cash-flow (747) Dividend Equity raised (6) (637) (80) + Others (97) + Debt raised 1, (250) (100) (100) -Investments 0 (0) Net cash-flow 466 (525) Opening cash Closing cash Fig 4 Ratio `50 P/E (x) Cash P/E (x) EV/EBITDA (x) EV/Sales (x) P/B (x) RoAE (%) RoACE (%) Dividend yield (%) Dividend payout (%) Debt/Equity (%) Receivable days Inventory days Payable days Working capital days Fixed asset T/O (x) Fig 5 PE band Fig 6 Export revenue Source: Bloomberg, Anand Rathi Research Anand Rathi Research 46

84 India I Equities Auto Components Result Preview 7 April 2014 Setco Automotive M&H CV slowdown to eat into sales; valuation inexpensive; Hold Rating: Hold Target Price: `88 Share Price: `89 Key takeaways Sales slowdown mirrors industry slump. We expect Setco Automotive s 4QFY14 sales to have declined 1.7% yoy, to `1bn, affected by the sharp decline in off-take in the M&H CV OEM segment generally. Volumes in this segment could have declined ~8%. To counter the slowdown in its domestic OEM sales, management is now seriously focusing on exports and the aftermarket. In FY13, the aftermarket and exports grew 16% and 31%, respectively, while OE sales declined 31%. Margin to be flat; continuing pressure on profitability. We expect the EBITDA margin, at 10.4%, to be flat yoy. This would be on account of the tight control on costs. We expect PAT to fall 8.8%, to `46.2m. With the expected rise in volumes of the high-margin after-market clutches, the margin would hold at the present level. Short-term pain to continue, long-term brighter. We expect FY14 sales to be impacted by the lower off-take in the M&H CV segment. In FY15, however, we expect the company to be a key beneficiary of the recovery in the CV cycle, with increasing exports and good aftermarket potential as added positives. We see strong revenue growth and margins bouncing back, thereby resulting in a better RoCE over FY Our take. We expect the company s financial performance to disappoint in FY14 as well. The recovery and upswing in the CV cycle in 2HFY15, however, ` would see Setco as the foremost beneficiary. Its short-term prospects continue to be dim. We maintain our Hold rating on the stock. We assign a one-year-forward PE of 6x FY15e and arrive at a target price of `88. Risks. Slump in auto demand, rise in commodity prices, insufficient price hikes by OEMs. Key data SETC IN /SETC.BO 52-week high / low 108/62 Sensex / Nifty / m average volume 0.1mn Market cap 2.3bn Shares outstanding 26.6m Shareholding pattern (%) Dec 13 Sep 13 Jun 13 Promoters of which, Pledged Free Float Foreign Institutions Domestic Institutions Public Financials (YE Mar) FY15e FY16e Sales (`m) 4,969 5,731 Net profit (`m) EPS (`) Growth (%) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%) Quarterly results (YE Mar) 4QFY13 4QFY14e % yoy 9M FY13 9MFY14 % yoy Sales (`m) 1,043 1,025 (1.7) 3,408 2,194 (35.6) EBITDA (`m) (0.9) (33.6) EBITDA margin (%) bps bps Interest (`m) Depreciation (`m) Other income (`m) PBT (`m) (37.0) Tax (`m) (402.2) (49.7) Tax rate (%) ,618bps (233)bps PAT (`m) (8.8) (35.3) Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

85 7 April 2014 Setco Automotive M&CV slowdown to eat into sales; valuation inexpensive; Hold Quick Glance Financials and Valuations Fig 1 Income statement (`m) Net sales 4,231 3,994 3,999 4,969 5,731 Sales growth (%) Op. expenses 3,479 3,427 3,513 4,270 4,919 EBIDTA EBITDA margins (%) Interest Depreciation Other income Tax Effective tax rate (%) Reported PAT /- Minority interest Adjusted PAT Adj. FDEPS (`/sh) Adj. FDEPS growth (%) DPS (`/share) Fig 2 Balance sheet (`m) Share capital Reserves & surplus 1,160 1,552 1,670 1,940 2,279 Shareholders fund 1,393 1,884 2,002 2,272 2,611 Debt 1,421 1,726 1,726 1,726 1,726 Minority interests Deferred Tax Liab (net) Capital employed 2,814 3,611 3,729 3,999 4,337 Net Fixed assets 1,148 1,509 1,469 1,416 1,348 Investments Working capital 1,360 1,707 1,706 2,127 2,464 Cash Capital deployed 2,814 3,611 3,729 3,999 4,337 Net Debt 1,333 1,699 1,540 1,637 1,568 Net Debt/Equity (%) W C turn (days) Book Value (`/sh) Fig 3 Cash-flow statement (`m) PAT Non-Cash Items Cash profit Incr./(Decr.) in WC (1) Operating cash-flow Capex Free cash-flow 98 (436) Dividend Equity raised Others (13) (303) Debt raised Investments Net cash-flow 50 (61) 159 (97) 70 +Opening cash Closing cash Fig 4 Ratio `87 P/E (x) Cash P/E (x) EV/EBITDA (x) EV/Sales (x) P/B (x) RoAE (%) RoACE (%) Dividend yield (%) Dividend payout (%) Debt/Equity (x) Receivable days Inventory days Payable days Working capital days Fixed asset T/O (x) Fig 5 PE band Fig 6 FY13 Revenue Breakup Source: Bloomberg, Anand Rathi Research Anand Rathi Research 48