Piramal Enterprises Ltd.

Investment Summary Piramal Enterprises Ltd. Independent Equity Research Equentis Wealth Advisory Services (P) Ltd Registered Office: 712, Raheja Chambers, Nariman Point, Mumbai 400021 India Tel: +91 22 61013800 Email: info@researchandranking.com

PIRAMAL ENTERPRISES LIMITED Disclaimer: This note has been prepared for the first time in January 2018 and is refreshed as and when deemed necessary. Our recommended companies are tracked regularly (quarterly). For latest information on the company and latest 15-18 months and 5-year targets, please visit the quarterly result report section on our website. Detailed quarterly results are uploaded every quarter in this section. Additionally, clients are also updated on any major events as and when they occur. Quantitative Factors Checklist Sr. No Aspect Required F12-17 Condition F18-22E Condition Criteria for Equentis 5x5 Actual Value Met? Future Value Met? (/N) strategy (Historical) (/N) (Forecasted) 1. Top-line 20-30 over last 5yrs 32.0 25.6 2. Loan Book 25-35 over last 5yrs 133.7 with inc bias in F16 32.8 3. EBIT 25-35 over last 5yrs Turned positive from negative; 46 o growth in F 17 N 25.8 4. PAT 25-35 over last 5yrs 61.1 - on a low base 29.3 achieved on a high base 5. ROE At least avg. 15 over last 5yrs with increasing bias 1.2 N 12.2 N 6. Dividend Payout Avg. 15-20 of Net profits over last 5 yrs High dividend paid every year; Payout ratio of 35-40 in last 2 years N 35.0 2

Qualitative Factors - Checklist Sr.No. Aspect Comment 1 Management pedigree, track record and integrity PEL is part of Piramal Group, a diversified conglomerate Group which has business interests in Pharma, Financial Services, Information Management, Glass Packaging and Real Estate. Mr. Ajay Piramal is the Chairman of Piramal Group and under his leadership, the Piramal Group has evolved from a textile centric business to a diversified conglomerate. He has more than 30 years of experience doing business. It has a professionally qualified second line of management in place with most members of management team having more than 20-25 years of experience. Required Criteria for Equentis 5x5 strategy-met? 2 Ownership Profile Promoter s stake in the company stands at 51.4. FIIs hold ~30 stake in the company Some of the marquee investors include Morgan Stanley Asia (Singapore) Pte. (3.28), East Bridge Capital Master Fund Ltd. (3.48), Aberdeen Global Indian Equity Ltd. (1.68), LIC of India (2.58). PEL is building on its core strategy of diversifying into related segments. It started the wholesale business with real estate finance and further expanded to other wholesale and retail lending segments. 3 Business USP & Market Leadership It has established itself as a leading real estate lender. It has funded 340+ projects to over 100 top developers through its complete product suite providing end-to-end financing in the real estate space. In the pharma business, it operates in niche and highly scalable healthcare segments with presence across API, ADC, branded hospital generics and analytics. It enjoys a strong global presence in this business. PEL is working with the vision of being a leading player in each area of its operations. 4 Past strategies towards acquisitions, capital allocation, fiscal prudence, capital spends, cash flow mgmt, dividend payouts, bonus, concern for minority s/hs PEL has grown over the years by entering into strategic partnerships with established companies. In the pharma business, it has mainly expanded through inorganic growth by acquiring established brands. In the financial services space, it has witnessed strong loan book growth while still maintaining strong asset quality. It has been consistently maintaining RoE at 25+. It has been consistently paying high dividends to its shareholders. 5 Succession Planning Mr. Ajay Piramal is the chairman of the company. He has more than 30 years of experience in the industry. Dr. Swati Piramal is the Vice Chairman and leads a team of scientists. Mr. Khushru Jijina is the Managing Director of Piramal Finance and Piramal Housing Finance. He is a Chartered Accountant with more than 16 years of experience with the Piramal Group. PEL is a professionally managed company with experienced second line of management in place. Most members of the management team have more than 20 years of experience. 3

Investment Thesis Rarely comes an opportunity like Piramal Enterprises, which offers a unique combination of scalability along with profitable growth. What adds to the optimism regarding PEL is the management and promoter pedigree. PEL is the flagship entity of the Piramal Group with a well noted history of creating global enterprises having leading position in their respective sectors. Also, the group has successfully demonstrated a unique capability to quickly scale up businesses through merger and acquisitions. This characteristic pioneering spirit is visible is the way PEL s business model is evolving. Listed below are the key factors that we believe make PEL a potential wealth creator stock going forward. Uniquely positioned in high growth segments PEL operates in two key areas of Financial Services and Healthcare. In both the sectors, PEL has identified specific niches with high growth potential and stands out due to its unique service offering. Listed below are PEL s unique proposition in each of the segments that we believe have been the key contributor to its growth. A. Financial Services- Income from Financial Services has grown at a 3-year of 65, supported by 104 growth in Loan Book to Rs.244bn (F17). Key factors that have been critical in PEL s success in the Financial Services space are: Forging deeper partnerships with the developers- In a very short span of 4-5 years, PEL has grown to become a leading real estate lender in India. Having funded over 340 projects of 100 plus developers until now across top 6 cities, PEL has emerged as formidable player in this segment. This strong growth has been driven by its focus on catering to the needs of developers across the entire lifecycle from land purchase to last mile inventory funding. PEL has an unparalleled suite of products, ranging from pure equity to senior lending. The company has significantly expanded its product suite over the years, with new products such as construction finance and LRD contributing to incremental loan growth. Well calibrated diversification from a pure Real Estate financier to a diversified wholesale lender and now growing the Retail Asset portfolio - Over the years, PEL has capitalized on its strong association with the developers to build on its real estate portfolio. To diversify within the wholesale space, it is now building Loan Book in the non-real Estate sectors as well. Further, it has set its eye on the Retail lending business and has recently acquired Housing Finance license. Besides, PEL has also taken strategic stake in Shriram Group companies with a view to diversify into other retail products. We believe that PEL as of now is gaining experience and expertise in retail segment through these strategic investments before it expands further. Portfolio diversification is the key to Piramal s success in the space as it reduces dependence on any single product for growth and also mitigates asset quality risks. ROE focused operations- Despite strong growth over past five years, asset quality has remained best-in-class, with GNPLs consistently less than 1. The company follows prudent standard asset provisioning of 2 of loans. Backed by higher margins, a low cost-to-income ratio and negligible credit cost, the business has exhibited a healthy RoA (pre-tax) of 5-6 and an RoE of 25+. However, with the addition of low-yielding and higher-duration products, coupled with the benefit of recent capital raise would keep RoAs largely stable but RoE may come under pressure. B. Healthcare In Healthcare business also PEL has demonstrated strong growth and improvement in profitability in recent years. Following the sale of its domestic formulations business to Abbott in F11, PEL has re-built its healthcare business. Over last five years, the company recorded healthcare revenue of 14, reaching Rs.39.7 bn in F17 (46 of total revenue). PIEL operates under two broad divisions in the healthcare segment: (1) global pharma (constituting 88 of Healthcare revenues) and (2) consumer products (11.5). Factors that will enable the company to report strong growth in the segment going forward includes: - Adding niche capabilities in the Global Pharma business PEL has end-to-end manufacturing and service delivery capabilities both for APIs and formulations, including niche capabilities in injectables, high-potency API, antibody drug conjugates, inhalation anesthesia, etc. In the last two years, PEL has invested heavily in the pharma business. It has spent Rs.30bn to acquire seven assets across geographies in different areas. It acquired two pharma businesses - Coldstream into Injectables and Ash Stevens into High Potency API. Both of these are in the U.S. Two pharma product portfolios that contain differentiated branded generic products from Janssen and the latest one from Mallinckrodt. In the consumer products 4

portfolio in India, it acquired four brands from Pfizer, five brands from Organon India & MSD, and the Baby-care brand Little s. Strong customer relationships and large distribution network- It also has a large global distribution network, reaching over 100 countries through dedicated sales force/distributors with a strong presence in key geographies of North America, Europe, India and Japan. PEL has been working with five of the top seven global pharmaceutical companies. Additionally, its long-term partnerships with several mid-sized, small and virtual pharma firms in the regulated markets have also supported growth. Regulatory compliances in place- PEL has a strong global footprint of manufacturing assets at 14 sites, of which nine are approved by the USFDA. Manufacturing facilities in India are primarily used to cater to the API market, whereas facilities in the US and Europe are primarily used for manufacturing formulations, as innovators typically want formulation manufacturing for patents to be closer to the end-markets. The company has successfully cleared more than 20 USFDA audits for its manufacturing facilities over the past three years, with no major observations. Current capital raise to drive strong growth in financial services business On 25th October 2017, PEL has successfully closed a QIP placement raising Rs50 bn, representing 10 equity dilution. The issue was fully subscribed at a conversion price of Rs. 2,690/- and saw a widespread participation form long only FIIs, global university endowment fund, domestic institutions and alternative asset managers comprising over 30 institutional investors. The company also intends to raise another Rs20 bn through rights issue to existing shareholders. We believe that the current and proposed fund raise totaling Rs70bn would be sufficient to support its growth for the next couple of years. It is estimated that almost 70-75 of the funds would be utilized towards supporting the strong growth in financial services business. The company intends to use funds for both organic and inorganic growth opportunities in the financial services business. Strong growth on revenue and PAT expected Consolidated EPS is expected to increase at a 5- year of 28-30 over F18 to F23 (from Rs.63 in F17 to Rs. 303 in F23, this is after considering 15 dilution on account of Rs70bn fund raise) and Book Value at the same time is likely to report a growth of 10 to Rs. 1,636 by F23 (compared to Rs.750 in F17 and Rs. 1,160 estimated for F18, factoring in the fund raise of Rs.70bn). Valuation and Recommendation Given strong traction in Wholesale lending business with new product addition, turnaround of healthcare business and value unlocking in information management segment, PEL is very well placed to deliver healthy returns over medium term. Using Sum-Of-The-Parts (SoTP) methodology, we arrive at a fair value of Rs. 6,900-7,800/-, indicating 2.5-3.0-xs price appreciation over the next 5 year holding period from current levels. SOTP F18 F19 F20 F21 F22 F23 5 Range 1 Range2* NBFC 2,841 3,035 3,291 3,618 4,008 4,490 5,131 Shriram Investments 450 495 545 599 659 725 725 Healthcare/Pharma 684 817 975 1,164 1,390 1,660 1,937 Information Management 155 171 188 207 228 250 300 Target Price 3,975 4,346 4,811 5,381 6,057 6,875 7,793 CMP 2,846 5 r Target Price 6,875 7,793 5 r upside (xs) 2.4 2.7 Note: F23 Range 2 arrived at by taking 4.0-xs P/BV multiple for NBFC business, 3.5-xs Mcap /Sales multiple for the Healthcare business and 3.0-xs Mcap /Sales multiple for the Information Management business. Disclaimer: Our 5yr. Target prices are rolling estimates. These factor in changes in accounting period, estimates v/s actual performance and changes in current valuation multiples periodically. Accordingly, our 5yr target prices on the dashboard may be different from the ones published at the time of Initiating coverage.

Financial Summary Consolidated Profit & Loss: Particulars (Rs. mn) F13 F14 F15 F16 F17 F18E F19E F20E F21E F22E F23E 5 yr F12-17 5 yr F18-23E 3 yr F14-17 Revenue 35,457 45,208 51,226 66,100 85,468 107,419 139,817 176,909 220,150 274,755 335,615 32 26 24 27 o 66 27 13 29 29 26 30 27 24 25 22 Consolidated EBIT o N.A -94 Unallocated Expenses 526 34 32,761 12,715 18,590 32,499 40,810 53,901 68,757 82,694 102,344 N.A. 26 718 28 96255-61 46 75 26 32 28 20 24 2,453 4,382 2,407 3,773 5,942 10,742 9,787 12,384 13,209 16,485 20,137 N.A. 13 11 7 of Revenue 6.9 9.7 4.7 5.7 7.0 10.0 7.0 7.0 6.0 6.0 6.0 Extraordinary items (191) 14 26,962 457 (100) - - - - - - PBT (excl. EI) (1,736) (4,361) 3,392 8,485 12,748 21,757 31,023 41,517 55,548 66,209 82,208 59 30 N.A. 37 o N.A N.A N.A 150 50 71 43 34 34 19 24 Tax 248 628 3,450 495 2,281 6,527 9,307 12,455 18,331 21,849 27,128 110 33 54 41 ETR -14.3-14.4 101.7 6.9 17.3 30.0 30.0 30.0 33.0 33.0 33.0 PAT (excl. EI) (1,984) (4,989) (58) 7,990 10,466 15,230 21,716 29,062 37,217 44,360 55,079 54 29 N.A. 35 o N.A N.A N.A N.A 31 46 43 34 28 19 24 PATM -5.6-11.0-0.1 12.1 12.2 14.2 15.5 16.4 16.9 16.1 16.4 MI & Share of associates PATconsolidated incl EI (42) (31) 1,593 1,942 1,699 2,039 2,447 2,936 3,523 4,228 5,073 (2,217) (5,007) 28,497 9,047 12,520 17,269 24,162 31,998 40,740 48,588 60,152 61 28 N.A. 33 Dividend 6,533 10,599 4,154 3,635 4,227 6,044 8,457 11,199 14,259 17,006 21,053 N.A. 28 N.A. 33 payout N.A N.A 14.6 40.2 33.8 35.0 35.0 35.0 35.0 35.0 35.0 N.A 35.0 29.5 35.0 Avg.1.5 Avg.16.3 Avg.8.1 3 yr F18-21E Avg.16.3 6

Balance Sheet: Particulars (Rs. mn) F13 F14 F15 F16 F17 F18E F19E F20E F21E F22E F23E Equity capital 345 345 345 345 345 397 397 397 397 397 397 Reserves 106,891 92,866 133,910 129,138 148,481 229,705 245,411 266,209 292,690 324,272 363,371 6 10 17 8 Net worth 107,354 93,211 134,256 129,485 148,958 230,234 245,940 266,739 293,220 324,802 363,901 6 10 17 8 Borrowings 71,798 90,803 64,838 143,029 265,752 348,003 572,119 802,300 1,029,467 1,391,689 1,733,349 74 38 43 44 Other liabilities 23,369 30,908 20,932 37,283 67,684 57,824 81,806 106,904 132,269 171,649 209,725 30 29 30 32 Total Liabilities 202,521 214,922 220,026 309,797 482,394 636,062 899,865 1,175,942 1,454,955 1,888,140 2,306,974 27 29 31 32 Assets Fixed assets + CWIP 60,814 66,821 67,735 78,803 108,523 127,212 179,973 235,188 261,892 320,984 369,116 39 24 18 27 Investment in associates 342 367 24,310 25,972 27,525 27,525 27,525 27,525 27,525 27,525 27,525 Investment+ Advances/Loans 86,594 114,250 101,386 172,528 297,638 414,800 601,460 811,971 1,055,562 1,372,231 1,715,289 34 33 38 37 Trade receivables 5,976 7,246 8,193 9,708 11,077 15,902 22,497 29,399 36,374 47,203 57,674 20 29 15 32 Cash and cash equivalents 2,875 3,336 4,237 3,659 15,409 22,000 27,916 18,941 8,128 35,230 33,556 93 9 67-28 Other assets 45,920 22,902 14,165 19,127 22,220 28,623 40,494 52,917 65,473 84,966 103,814 N.A. 29 N.A. 32 Total assets 202,521 214,922 220,026 309,797 482,394 636,062 899,865 1,175,942 1,454,955 1,888,140 2,306,974 27 29 31 32 NOTE: We have assumed Rs70bn fund raise to go through in F18 and hence taken ~15 equity dilution in shares outstanding. Ratios: Particulars F13 F14 F15 F16 F17 F18E F19E F20E F21E F22E F23E No. of outstanding shares (mn) 172.6 172.6 172.6 172.6 172.6 198.6 198.6 198.6 198.6 198.6 198.6 7 Avg 5 yr F13-17 Avg 5 yr F19-23E 5 yr F12-17 5 yr F18-23E Avg 3 yr F15-17 3 yr F14-17 Avg 3 yr F19-21E EPS (core business)- Diluted (Rs) (11.2) (25.2) 143.5 45.6 63.1 87.0 121.7 161.1 205.2 244.7 302.9 61 28 N.A. 33 o -292 126-669 -68 38 38 40 32 27 19 24 BV- Diluted (Rs) 541 469 676 652 750 1,160 1,239 1,343 1,477 1,636 1,833 6 10 17 8 o -5-13 44-4 15 55 7 8 10 11 12 RoE () -1.8-5.4 0.0 6.2 7.0 6.6 8.8 10.9 12.7 13.7 15.1 1.2 12.2 4.4 10.8 RoCE () 0.3 0.0 14.9 4.1 3.9 5.1 4.5 4.6 4.7 4.4 4.4 4.6 4.5 7.6 4.6 D:E (x) 0.7 1.0 0.5 1.1 1.8 1.5 2.3 3.0 3.5 4.3 4.8 1.0 3.6 1.1 2.9 3 yr F18-21E

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