(AXSB IN) Rating: ACCUMULATE CMP: Rs611 TP: Rs681 November 2, 2018 Q2FY19 Result Update Change in Estimates Target Reco Change in Estimates Current Previous FY19E FY20E FY19E FY20E Rating ACCUMULATE ACCUMULATE Target Price 681 624 NII (Rs. m) 216,012 257,347 214,858 254,240 % Chng. 0.5 1.2 Op. Profit (Rs. m) 173,120 206,461 172,395 202,889 % Chng. 0.4 1.8 EPS (Rs.) 18.4 35.1 19.5 33.1 % Chng. (5.9) 5.9 Key Financials FY18 FY19E FY20E FY21E NII (Rs bn) 186 216 257 301 Op. Profit (Rs bn) 156 173 206 244 PAT (Rs bn) 3 48 92 123 EPS (Rs.) 1.1 18.4 35.1 47.0 Gr. (%) (92.8) 1,551.8 91.2 33.9 DPS (Rs.) 4.4-5.0 6.0 Yield (%) 0.7-0.8 1.0 NIM (%) 3.1 3.2 3.4 3.5 RoAE (%) 0.5 7.1 12.3 14.7 RoAA (%) 0.0 0.6 1.1 1.3 P/BV (x) 2.5 2.3 2.0 1.8 P/ABV (x) 3.2 2.6 2.3 2.0 PE (x) 549.5 33.3 17.4 13.0 CAR (%) 16.6 16.8 16.3 16.0 Key Data AXBK.BO AXSB IN 52-W High / Low Rs.678 / Rs.478 Sensex / Nifty 35,012 / 10,553 Market Cap Rs.1,567bn/ $ 21,610m Shares Outstanding 2,569m 3M Avg. Daily Value Rs.15817.2m Shareholding Pattern (%) Promoter s 25.91 Foreign 48.21 Domestic Institution 14.77 Public & Others 11.11 Promoter Pledge (Rs bn) Stock Performance (%) 1M 6M 12M Absolute 2.8 16.5 14.6 Relative 7.2 17.0 9.9 Pritesh Bumb priteshbumb@plindia.com 91-22-66322232 Asset quality stress coming off gradually Quick Pointers Higher upgrades than downgrades in BB & Below which is 1.7% of assets which led to another quarter of lower slippages of Rs27.8bn TDs growth has been much higher leading to higher CoF but 54% of loans are on MCLR which will help repricing faster, steadying NIMs profile Axis bank s earnings of Rs7.9bn (PLe: Rs8.2bn) saw marginal miss but NII profile was better and decent fee income helped core PPOP grow at 16% YoY. Highlight of the quarter was continued lowered slippage of Rs27.8bn (annualized 2.5% of loans v/s 3.9% in Q1FY19) and decent recovery/upgrades helping improve overall asset quality and reducing stress levels. Bank is also continuously improving its PCR especially on NCLT a/c at ~90%. Going ahead, power resolutions will be important (large part of BB & Below) to drive asset quality, but despite that we will see gradual improvement in core operations as credit cost normalized, positive bias on NIMs and improving loan growth. We revise our TP to Rs681 (from Rs624) based on 2.3x Sep-20 ABV (from 2.4x Mar-20 ABV). NII better but NIMs yet to see marked improvement: NII growth of 15% YoY was slightly better than expectation but NIMs at 3.36% are yet to see marked improvement as MCLRs are yet to catch up (54% of total loans of which 65% in 3-6Mth duration) and bank has been growing TDs>CASA and loan growth keeping cost of funds also up. Margins should start moving up as yields catch up with improving asset quality. Management guided NIMs range of 350-375bps in medium to longer tenure led by domestic NIMs with pricing power is partly moving back in corporate and partly in ex-mortgage retail. Improving asset quality has been relief: Slippages were at Rs27.8bn with corporate slippages at Rs10.9 bn and predominantly from BB & Below book which is now 1.7% of assets (from 2.1% in Q1FY19). This led GNPAs/NNPAs to come off by 60bps QoQ to 6.0%/2.5% respectively. Importantly bank has been improving its PCR profile with currently at 58.9% (73% incl. technical w.off) up ~400-450bps sequentially and 90% on the NCLT exposures (RBI referred). Bank maintained credit cost be much lower in H2FY19 and should trend downwards to 110bps of normalized credit cost on long period average. Loans growth momentum intact for non-corporate: Overall loan book grew slightly slower at 11% which has been on slowing corporate loans (take outs and consolidation), while retail/sme continues to clock strong growth. Bank remains focused on unsecured, small biz loans, education loans in retail and working capital loans in SME & corporate segments. Valuations premium to peers: Valuations at 2.2x/1.9x FY20/21 is higher to immediate peers which should restrict higher upside, while risk in near term remains on the power sector resolutions as power is large part of watch list for axis but with much comfortable PCR credit cost should normalize helping ROE seeing gradual improvement by 15% in FY21. November 2, 2018 1
Q2FY19 Financials Better NII helps PPOP; lower slippages help on lesser provisions (Rs m) Q2FY19 Q2FY18 YoY gr. (%) Q1FY19 QoQ gr. (%) Interest Income 132,810 112,351 18.2 127,770 3.9 Interest Expenses 80,489 66,955 20.2 76,102 5.8 Net interest income (NII) 52,321 45,396 15.3 51,668 1.3 Other income 26,784 25,855 3.6 29,250 (8.4) Total income 79,105 71,252 11.0 80,918 (2.2) Operating expenses 38,165 33,478 14.0 37,198 2.6 -Staff expenses 11,747 10,828 8.5 12,278 (4.3) -Other expenses 26,418 22,650 16.6 24,920 6.0 Operating profit 40,940 37,773 8.4 43,720 (6.4) Core operating profit 39,580 34,003 16.4 42,690 (7.3) Total provisions 29,274 31,404 (6.8) 33,377 (12.3) Profit before tax 11,666 6,369 83.2 10,343 12.8 Tax 3,770 2,045 84.3 3,333 13.1 Profit after tax 7,896 4,324 82.6 7,011 12.6 Balance sheet (Rs m) Deposits 4,796,796 4,164,306 15.2 4,470,793 7.3 Advances 4,561,213 4,101,708 11.2 4,410,745 3.4 Ratios (%) Profitability ratios RoaA 0.4 0.3 17 0.4 4 NIM 3.4 3.5 (9) 3.5 (10) Cost of Funds 5.3 5.2 16 5.2 11 Asset Quality Gross NPL 309,383 274,023 12.9 326,624 (5.3) Net NPL 127,157 140,523 (9.5) 149,016 (14.7) Gross NPL ratio 5.96 5.9 6 6.5 (56) Net NPL ratio 2.54 3.1 (58) 3.1 (55) Coverage ratio (Calc) 58.9 48.7 1,018 54.4 452 Business & Other Ratios Low-cost deposit mix 48.0 50.0 (200) 47.0 100 Cost-income ratio 48.2 47.0 126 46.0 228 Non int. inc / total income 33.9 36.3 (243) 36.1 (229) Credit deposit ratio 95.1 98.5 (341) 98.7 (357) CAR 16.5 16.3 13 16.7 (25) Tier-I 13.0 12.4 68 13.2 (18) November 2, 2018 2
Loan growth came of slightly on consolidation in large corporate loan book, while retail continued to grow strong (Rs m) Q2FY19 Q2FY18 YoY gr. (%) Q1FY19 QoQ gr. (%) Large & mid-corporate 1,741,490 1,731,970 0.5 1,724,430 1.0 SME Advances 602,620 527,180 14.3 569,830 5.8 Retail 2,217,100 1,842,560 20.3 2,116,480 4.8 - Housing Loans & LAP 864,669 792,301 9.1 846,592 2.1 - Personal loans 243,881 165,830 47.1 211,648 15.2 - Auto loans 243,881 184,256 32.4 232,813 4.8 Margins was steady (excl one-off in last quarter) with improving trends in some part of portfolio than TD growth CASA ratio was steady but CASA growth slower 4.1% 4.0% 3.9% NIM (%) 54% 52% 50% Low Cost deposits(%) 3.8% 48% 3.7% 46% 3.6% 3.5% 3.4% 3.3% 44% 42% 40% MCLR loans share is inching up sharply Base Rate MCLR Fixed LIBOR 14% 15% 16% 14% 14% 14% 14% 13% 14% 12% 17% 17% 16% 15% 16% 17% 19% 20% 21% 21% 11% 18% 29% 36% 40% 43% 49% 50% 54% 65% 57% 50% 42% 34% 29% 24% 18% 15% 13% November 2, 2018 3
4Q14 Axis Bank Retail fees dominate with higher transaction and loan related fees Retail (non card) Retail (card) Transc. Bnking SME Treasry & DCM Corp Fees 25% 20% 20% 20% 18% 21% 17% 18% 13% 12% 5% 4% 5% 4% 2% 1% 1% 1% 4% 1% 2% 4% 1% 2% 1% 6% 5% 5% 5% 4% 20% 20% 22% 22% 22% 20% 19% 20% 20% 20% 18% 20% 20% 20% 21% 21% 22% 26% 24% 20% 31% 31% 32% 33% 33% 34% 35% 34% 35% 38% Source: Company Data, PL Research income C/I slightly deteriorated on higher other opex and lower other 54% 52% 50% 48% 46% 44% 42% 40% 38% 36% 34% cost-income 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 Asset quality improves on lower slippages and better recoveries Gross NPA (%) Net NPA (%) Coverage Ratio (%) - RHS 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 80% 70% 60% 50% 40% 30% 20% 10% 0% November 2, 2018 4
AA rated exposures sees improvement AAA/AA/A BBB <BB or unrated 8% 9% 9% 9% 11% 11% 11% 12% 16% 15% 14% 12% 10% 11% 9% 5% 6% 5% 31% 30% 31% 29% 29% 28% 27% 26% 20% 22% 23% 22% 22% 19% 17% 18% 16% 16% 61% 61% 60% 62% 60% 61% 62% 62% 64% 63% 63% 66% 68% 70% 74% 77% 78% 79% Stable scenario in SME ratings SME 1-3 SME 4 SME 5-8 8% 8% 7% 7% 8% 7% 8% 8% 9% 8% 7% 7% 6% 5% 5% 6% 6% 5% 14% 12% 11% 9% 9% 8% 8% 8% 8% 8% 8% 9% 9% 8% 8% 6% 6% 6% 78% 80% 82% 83% 85% 83% 85% 85% 86% 87% 88% 88% 89% Net Stressed loan outside the NPA increase to 2.1% of Net customer assets Stressed Loans (Rs Mn) Gross slippages 14,740 36,380 87,720 45,600 48,110 35,190 89,360 44,280 165,360 43,370 27,770 Recoveries+ Up gradations 7,800 1,400 10,730 3,500 28,040 3,060 10,480 40,080 34,010 29,170 21,860 Write-offs 3,300 320 8,730 1,220 11,940 24,620 25,170 28,220 38,870 30,070 23,150 Slippages (%) 1.80% 4.26% 10.05% 5.21% 5.34% 3.71% 8.98% 4.26% 15.37% 3.94% 2.48% BB & Below Book 194,120 274,110 219,300 207,880 196,850 194,600 158,150 161,200 89,940 103,960 88,600 % of customer assets 5.7% 7.4% 5.7% 5.5% 4.8% 4.6% 3.5% 3.5% 1.8% 2.2% 1.7% Watch List 226,280 202,950 137,890 110,910 94,360 79,410 60,520 53,090 4,280 Corp Restructured Advances 84,790 76,650 68,830 62,420 54,890 54,320 38,600 35,250 10,810 11,588 11,987 SDR / S4A / 5-25 Advances 41,890 52,630 51,580 43,510 46,090 49,720 52,770 52,880 10,890 16,882 15,573 Total Restructured Dispensation 124,920 117,640 104,220 101,200 96,450 73,900 69,850 20,650 28,470 27,560 % of loans 3.6% 3.3% 3.0% 2.7% 2.5% 1.8% 1.7% 0.5% 0.6% 0.5% Total stress (adjusted for overlaps) 303,920 334,680 268,580 235,450 207,610 189,910 174,420 159,260 91,060 122,360 109,280 % of Customer Assets 9.0% 9.7% 7.6% 6.8% 5.6% 4.5% 3.9% 3.5% 1.9% 2.5% 2.1% November 2, 2018 5
Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17 Nov-17 Feb-18 May-18 Aug-18 Nov-18 Axis Bank Estimates Changes We tweak on margins, lower other income and slightly increase credit cost for PCR improvement (Rs mn) Old Revised % Change FY19E FY20E FY19E FY20E FY19E FY20E Net interest income 214,858 254,240 216,012 257,347 0.5 1.2 Operating profit 172,395 202,889 173,120 206,461 0.4 1.8 Net profit 50,481 86,540 47,527 91,644 (5.9) 5.9 EPS (Rs) 19.5 33.1 18.4 35.1 (5.9) 5.9 ABVPS (Rs) 227.4 262.0 233.8 269.4 2.8 2.8 Price target (Rs) 624 681 9.1 Recommendation ACCUMULATE ACCUMULATE Source: Company Data, PL Research We revise our TP to Rs681 (from Rs624) based on 2.3x Sep-20 ABV (from 2.4x Mar-20 ABV) PT calculation and upside Terminal growth 5.0% Market risk premium 6.0% Risk-free rate 8.0% Adjusted beta 1.05 Cost of equity 14.3% Fair price - P/ABV 681 Target P/ABV 2.3 Target P/E 16.6 Current price, Rs 602 Upside (%) 13% Dividend yield (%) 1% Total return (%) 14% AXSB s historical P/ABV trends 3.6 P/ABV 3 yr avg. avg. + 1 SD avg. - 1 SD 3.2 2.8 2.4 2.0 1.6 1.2 0.8 November 2, 2018 6
Income Statement (Rs. m) Int. Earned from Adv. 341,375 401,730 481,633 570,099 Int. Earned from invt. 99,833 113,478 120,083 125,985 Others 16,595 18,697 19,887 21,347 Total Interest Income 457,803 533,905 621,603 717,432 Interest Expenses 271,626 317,893 364,256 416,548 Net Interest Income 186,177 216,012 257,347 300,884 Growth(%) (0.7) 11.6 16.7 16.3 Non Interest Income 109,671 114,058 127,745 146,906 Net Total Income 295,848 330,070 385,092 447,790 Growth(%) 0.9 14.2 15.6 15.3 Employee Expenses 43,130 48,305 53,860 60,323 Other Expenses 91,093 103,846 119,423 137,336 Operating Expenses 139,903 156,950 178,631 203,328 Operating Profit 155,945 173,120 206,461 244,462 Growth(%) (11.3) 11.0 19.3 18.4 NPA Provision 165,987 94,525 65,677 57,650 Total Provisions 154,729 102,184 70,289 62,110 PBT 1,216 70,936 136,172 182,353 Tax Provision (1,541) 23,409 44,528 59,629 Effective tax rate (%) (126.8) 33.0 32.7 32.7 PAT 2,757 47,527 91,644 122,723 Growth(%) (92.5) 1,624.0 92.8 33.9 Balance Sheet (Rs. m) Face value 2 2 2 2 No. of equity shares 2,567 2,612 2,612 2,612 Equity 5,133 5,224 5,224 5,224 Networth 634,453 707,607 783,409 887,123 Growth(%) 13.8 11.5 10.7 13.2 Adj. Networth to NNPAs 165,917 105,381 82,792 75,298 Deposits 4,536,227 5,148,618 5,895,167 6,808,918 Growth(%) 9.5 13.5 14.5 15.5 CASA Deposits 2,438,516 2,666,984 3,059,592 3,554,255 % of total deposits 53.8 51.8 51.9 52.2 Total Liabilities 6,913,296 7,790,041 8,836,962 10,102,356 Net Advances 4,396,503 5,055,979 5,890,215 6,921,003 Growth(%) 17.8 15.0 16.5 17.5 Investments 1,538,761 1,629,090 1,685,007 1,766,746 Total Assets 6,913,296 7,790,041 8,836,962 10,102,356 Growth (%) 14.9 12.7 13.4 14.3 Asset Quality Gross NPAs (Rs m) 342,486 269,329 230,444 221,539 Net NPAs (Rs m) 165,917 105,381 82,792 75,298 Gr. NPAs to Gross Adv.(%) 7.8 5.3 3.9 3.2 Net NPAs to Net Adv. (%) 3.8 2.1 1.4 1.1 NPA Coverage % 51.6 60.9 64.1 66.0 Profitability (%) NIM 3.1 3.2 3.4 3.5 RoAA 0.0 0.6 1.1 1.3 RoAE 0.5 7.1 12.3 14.7 Tier I 13.0 11.8 11.7 11.8 CRAR 16.6 16.8 16.3 16.0 Source: Company Data, PL Research Quarterly Financials (Rs. m) Y/e Mar Q3FY18 Q4FY18 Q1FY19 Q2FY19 Interest Income 117,216 117,712 127,770 132,810 Interest Expenses 69,900 70,407 76,102 80,489 Net Interest Income 47,315 47,305 51,668 52,321 YoY growth (%) 3.3 9.3 18.2 20.2 CEB 22,460 24,480 21,170 23,760 Treasury - - - - Non Interest Income 25,931 27,887 29,250 26,784 Total Income 143,146 145,599 157,020 159,594 Employee Expenses 10,629 10,789 12,278 11,747 Other expenses 24,079 27,680 24,920 26,418 Operating Expenses 34,708 38,469 37,198 38,165 Operating Profit 38,538 36,722 43,720 40,940 YoY growth (%) (16.9) (16.1) 1.9 8.4 Core Operating Profits 36,538 34,562 42,690 39,580 NPA Provision 27,540 81,280 30,690 26,860 Others Provisions 28,110 71,795 33,377 29,274 Total Provisions 28,110 71,795 33,377 29,274 Profit Before Tax 10,428 (35,073) 10,343 11,666 Tax 3,163 (13,186) 3,333 3,770 PAT 7,264 (21,887) 7,011 7,896 YoY growth (%) 25.3 (278.7) (46.3) 82.6 Deposits 4,089,667 4,536,227 4,470,793 4,796,796 YoY growth (%) 10.3 9.5 13.5 15.2 Advances 4,209,227 4,396,503 4,410,745 4,561,213 YoY growth (%) 21.2 17.8 14.4 11.2 Key Ratios CMP (Rs) 611 611 611 611 EPS (Rs) 1.1 18.4 35.1 47.0 Book Value (Rs) 247 271 300 340 Adj. BV (70%)(Rs) 192 234 269 311 P/E (x) 549.5 33.3 17.4 13.0 P/BV (x) 2.5 2.3 2.0 1.8 P/ABV (x) 3.2 2.6 2.3 2.0 DPS (Rs) 4.4-5.0 6.0 Dividend Payout Ratio (%) 509.8-17.3 15.5 Dividend Yield (%) 0.7-0.8 1.0 Efficiency Cost-Income Ratio (%) 47.3 47.6 46.4 45.4 C-D Ratio (%) 96.9 98.2 99.9 101.6 Business per Emp. (Rs m) 150 153 159 167 Profit per Emp. (Rs lacs) 0 7 12 15 Business per Branch (Rs m) 2,412 2,396 2,407 2,438 Profit per Branch (Rs m) 1 11 19 22 Du-Pont NII 3.13 3.20 3.39 3.48 Total Income 4.98 4.89 5.07 5.17 Operating Expenses 2.35 2.33 2.35 2.35 PPoP 2.62 2.57 2.72 2.82 Total provisions 2.60 1.52 0.93 0.72 RoAA 0.05 0.70 1.21 1.42 RoAE 0.46 7.08 12.29 14.69 Source: Company Data, PL Research November 2, 2018 7
Price Chart Recommendation History (Rs) 675 600 524 449 373 Nov-15 May-16 Oct-16 Apr-17 Oct-17 Apr-18 Oct-18 No. Date Rating TP (Rs.) Share Price (Rs.) 1 13-Dec-17 BUY 654 535 2 13-Dec-17 BUY 654 535 3 10-Jan-18 BUY 654 565 4 23-Jan-18 BUY 651 611 5 12-Feb-18 BUY 651 558 6 15-Mar-18 BUY 651 529 7 13-Apr-18 BUY 621 519 8 27-Apr-18 BUY 585 495 9 10-Jul-18 BUY 585 525 10 31-Jul-18 Accumulate 624 570 Analyst Coverage Universe Sr. No. CompanyName Rating TP (Rs) Share Price (Rs) 1 Axis Bank Accumulate 624 586 2 Bank of Baroda BUY 161 110 3 Bank of India Reduce 89 79 4 Federal Bank BUY 102 82 5 HDFC Bank BUY 2,310 1,968 6 HDFC Standard Life Insurance Company BUY 500 359 7 ICICI Bank BUY 365 316 8 ICICI Prudential Life Insurance Company BUY 507 323 9 IDFC Bank Accumulate 55 37 10 IndusInd Bank BUY 2,000 1,627 11 Jammu & Kashmir Bank BUY 94 40 12 Kotak Mahindra Bank Hold 1,291 1,177 13 Max Financial Services BUY 700 359 14 Punjab National Bank Hold 79 65 15 SBI Life Insurance Company BUY 779 564 16 South Indian Bank BUY 22 15 17 State Bank of India BUY 349 271 18 Union Bank of India Reduce 79 68 19 YES Bank Accumulate 231 198 PL s Recommendation Nomenclature (Absolute Performance) Buy : > 15% Accumulate : 5% to 15% Hold : +5% to -5% Reduce : -5% to -15% Sell : < -15% Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly November 2, 2018 8
ANALYST CERTIFICATION (Indian Clients) We/I, Ms. Pritesh Bumb- MBA, M.com Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. (US Clients) The research analysts, with respect to each issuer and its securities covered by them in this research report, certify that: All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and No part of his or her or their compensation was, is or will be directly related to the specific recommendation or views expressed in this research report. DISCLAIMER Indian Clients Prabhudas Lilladher Pvt. Ltd, Mumbai, India (hereinafter referred to as PL ) is engaged in the business of Stock Broking, Portfolio Manager, Depository Participant and distribution for third party financial products. PL is a subsidiary of Prabhudas Lilladher Advisory Services Pvt Ltd. which has its various subsidiaries engaged in business of commodity broking, investment banking, financial services (margin funding) and distribution of third party financial/other products, details in respect of which are available at www.plindia.com. This document has been prepared by the Research Division of PL and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of PL. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, PL has not independently verified the accuracy or completeness of the same. Neither PL nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor. Either PL or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication. PL may from time to time solicit or perform investment banking or other services for any company mentioned in this document. PL is in the process of applying for certificate of registration as Research Analyst under Securities and Exchange Board of India (Research Analysts) Regulations, 2014 PL submits that no material disciplinary action has been taken on us by any Regulatory Authority impacting Equity Research Analysis activities. PL or its research analysts or its associates or his relatives do not have any financial interest in the subject company. PL or its research analysts or its associates or his relatives do not have actual/beneficial ownership of one per cent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report. PL or its research analysts or its associates or his relatives do not have any material conflict of interest at the time of publication of the research report. PL or its associates might have received compensation from the subject company in the past twelve months. PL or its associates might have managed or co-managed public offering of securities for the subject company in the past twelve months or mandated by the subject company for any other assignment in the past twelve months. PL or its associates might have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months. PL or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months PL or its associates might have received any compensation or other benefits from the subject company or third party in connection with the research report. PL encourages independence in research report preparation and strives to minimize conflict in preparation of research report. PL or its analysts did not receive any compensation or other benefits from the subject Company or third party in connection with the preparation of the research report. PL or its Research Analysts do not have any material conflict of interest at the time of publication of this report. It is confirmed that Ms. Pritesh Bumb- MBA, M.com Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. The Research analysts for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report. The research analysts for this report has not served as an officer, director or employee of the subject company PL or its research analysts have not engaged in market making activity for the subject company Our sales people, traders, and other professionals or affiliates may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all o the foregoing, among other things, may give rise to real or potential conflicts of interest. PL and its associates, their directors and employees may (a) from time to time, have a long or short position in, and buy or sell the securities of the subject company or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the subject company or act as an advisor or lender/borrower to the subject company or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions. US Clients This research report is a product of Prabhudas Lilladher Pvt. Ltd., which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account. This report is intended for distribution by Prabhudas Lilladher Pvt. Ltd. only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor. In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, Prabhudas Lilladher Pvt. Ltd. has entered into an agreement with a U.S. registered broker-dealer, Marco Polo Securities Inc. ("Marco Polo"). Transactions in securities discussed in this research report should be effected through Marco Polo or another U.S. registered broker dealer. Prabhudas Lilladher Pvt. Ltd. 3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai-400 018, India Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209 www.plindia.com Bloomberg Research Page: PRLD <GO> November 2, 2018 9