Note on Marginal Cost of Funds based Lending Rate (MCLR)

te on Marginal Cost of Funds based Lending Rate (MCLR) Tempered Approach December 2015

Marginal Cost of Fund based Lending Rate (MCLR) Tempered Approach The RBI s final guidelines on transitioning to a marginal cost of funds based computation of lending rates reflects a more accommodative stance, as anticipated, vis-à-vis the draft guidelines issued in September. While the RBI s primary objective of hastening monetary policy transmission stands intact, limiting the applicability of the MCLR formula to new loans issued beyond April 1, 2016, eradicates the fear of NIM erosion in the near term. However, post transition, the move to MCLR is likely to lead to a marked slowdown in transmission of deposit rates, usher in volatile card rates on deposits and create pro-cyclicality in earnings in an already stressed asset quality, low credit growth environment. netheless, we foresee limited impact on overall bank profitability as against the earlier draft guideline (refer our note on the draft guidelines dated Sep 7, 2015). While calculating negative carry on CRR is likely to result in an addition of ~25bps to the MCLR against no negative carry on CRR+SLR in the prior formula, banks now do not have subjectivity in calculating hurdle rates on RoE; the new formula prefers an objective cost of equity approach carrying a low 8% weight. Also, by including the tenor premium in the MCLR instead of in the spread charged to the borrower, the RBI has largely negated spread subjectivity. Our sensitivity analysis suggests that banks with a significant borrowing profile are better positioned as the borrowing cost is computed on an average basis. To illustrate, a bank with a 20% borrowing profile is likely to see ~40% pass through of falling deposit rates into MCLR while a largely deposit funded franchise is likely to witness ~70% pass through. Given that most banks operate on a fairly stable operating cost structure and stable tenor premiums, eventually, the MCLR computation will morph into a direct one on one correlation with the marginal cost of funds, impeding deposit rate transmission. We compute a 29bps delta between existing base rates and MCLR computed according to the new guidelines for our coverage universe. The delta post transition is likely to be limited for KMB, HDFCB, SBIN and ICICIBC while SIB, DCBB, PNB and JKBK could witness the largest differentials. netheless, we see limited NIM impact for our coverage universe led by a) the existing loan book seeing no impact b) the ability to mark a higher risk premium in the spread component under MCLR vis-a-vis the current base rate methodology. We make no changes to our stock calls and model portfolio post our analysis. Bank Existing Base Rate % MCLR (1Yr) % Delta (bps) SIB 10.00% 9.24% 76bps DCBB 10.70% 10.07% 63bps PNB 9.60% 9.01% 59bps JKBK 9.50% 8.95% 55bps YES 10.50% 9.96% 54bps CUBK 10.50% 10.00% 50bps IIB 10.60% 10.12% 48bps CBK 9.65% 9.20% 45bps KVB 10.40% 9.99% 41bps AXSB 9.50% 9.12% 38bps BOI 9.70% 9.33% 37bps FB 9.63% 9.38% 25bps BOB 9.65% 9.42% 23bps ICICIBC 9.35% 9.14% 21bps SBIN 9.30% 9.12% 18bps HDFCB 9.35% 9.17% 18bps KMB 9.75% 9.78% -3bps Coverage Universe 9.53% 9.23% 29bps Date 21 Dec, 2015 Market Data SENSEX 25519 BANKEX 18934 NIFTY 7762 20% 10% 0% -10% -20% Dec-14 Mar-15 Jun-15 Sep-15 Dec-1 Bankex Sensex Stock Performance (%) 1m 3m 12m Bankex -1% -5% -10% Sensex 0% -3% -6% ABHINESH VIJAYRAJ abhinesh@sparkcapital.in +91 44 4344 0006 NAVIN BABU E S navin@sparkcapital.in +91 44 4344 0065 NISHANT RUNGTA nishant@sparkcapital.in +91 44 4344 0033 Find Spark Research on Bloomberg (SPAK <go>), Thomson First Call, Reuters Knowledge and Factset Page 2

Key differences Key Differences Component Draft Guidelines Final Guidelines Marginal Cost of Funds Simple weighted average of cost of liabilities (card rates) and proportion of liabilities. More detailed, with cost of long term borrowings being computed on an average basis; core portion of the CA & SA deposits to be used for CASA; swap cost and hedge cost included in foreign currency borrowings. Cost of Equity calculated using CAPM to be included. Negative Carry Computed on both CRR and SLR. Computed only on CRR. Operating / Overhead costs Should comprise solely of costs incurred for the bank as a whole, not allocable to any particular business activity or unit. Fixed for 3 years. All operating costs associated with providing the loan product including cost of raising funds will be included under this head. Service charges to be netted off. Return on Equity Separate component; hurdle rate of return on equity to be board / management determined. CoE computed using CAPM, included in Marginal Cost of Funds with weights limited to 8%. Tenor Premium Included in the spread component. Included as a separate component in the MCLR, limiting subjectivity in spreads. Date of implementation April 1, 2016. April 1, 2016. Exemptions exemptions specified. Exemptions on loans such as FITL, WCTL under restructuring, GOI linked refinance schemes. Existing Loans transition specified. To continue on current terms until repayment or renewal. Review periodicity Quarterly. Monthly (to be reviewed & published on a pre-announced date). Different rates for different maturities Spreads Reset Source: Spark Capital Research. To be uniform for a certain risk level. t specified. Yes. To be based on a board approved policy and the broad components being business strategy & credit risk premium (based on appropriate risk rating model). Spread for a borrower cannot be changed without a full risk profile review. Reset dates linked either to date of sanction or to the date of review of MCLR. Rate on date of sanction to be applicable until reset. Page 3

Impact of MCLR not as pronounced under Final guidelines SBI s Marginal Cost of Fund based Lending Rate (MCLR) under the new methodology works out to 9.12%, which is 18bps lower than the current base rate. Source of funds (excluding equity) Deposit Rates on the date of review (%) Balance O/s as % of total funds Marginal Cost CA 0.00 7% 0.00 SA 4.00 29% 1.16 TD - Upto 1 month 5.25 7% 0.37-1 to 6 months 6.50 6% 0.36-6 months to 1 year 7.00 13% 0.88 - More than 1 year 7.25 26% 1.85 Borrowings RBI 6.75 0% 0.00 Other banks 6.50 2% 0.15 Bonds and debentures 9.00 11% 1.01 Marginal Cost of Borrowings 5.78 Rs.Bn SBIN Current Base Rate 9.30% Marginal Cost of Borrowing [A] 5.78% Cost of Equity (CAPM) [B] 14.25% Marginal CoF [C] = 92% * [A] + 8% * [B] 6.46% Negative carry on CRR [D] = 4% * [C] / (1-4%) 0.27% Operating costs [E] 1.89% Tenor Premium (1Yr) [F] 0.50% Marginal Cost of Funds based Lending Rate [G] = [C] + [D] + [E] + [F] 9.12% Delta (bps) -18 Computation of existing base rate = Bench mark Cost (usually linked to the 6 month deposit rate, ranges between 6% to 8.25%) + Negative Carry on CRR and SLR (linked to the 365 day treasury bill currently at 7.46%) + Unallocable costs (usually varies between 0-1%) + Average RoE (last financial year). For SBI => 7.25% + 0.3% + 1% + 1.18% = 9.7%. Computation of base rate (according to draft guidelines) = Marginal cost of funds (applicable card rates on the date of review, ranges between 5.8% to 7.1% ) + Negative Carry on CRR and SLR (linked to the 365 day treasury bill currently at 7.46%) + Unallocable costs (usually varies between 0-1%) + Hurdle RoE (to be decided by the Board/management of the bank). For SBI=> 5.92%+ 0% +1% + 1.73% = 8.65%. Computation of Marginal Cost of Fund based Lending Rate (MCLR) = Marginal cost of funds (calculated as weighted average of marginal cost of borrowings and cost of equity) + Negative carry on CRR (linked to marginal CoF) + Operating costs (cost of providing loans including cost of raising funds) + Tenor Premium (asset class agnostic and linked to bank s ALM). For SBI => 6.46% + 0.27% + 1.89% + 0.50% = 9.12%. Source: Spark Capital Research, * Tenor premium assumed at 50bps for 1-year residual tenor Page 4

Components of MCLR - Sensitivity Analysis Sensitivity Analysis Impact on base rates for SBI MCLR (bps) Borrowings (as % of liabilities) Cost of Deposits (%) 6.25 6.45 6.65 6.85 7.05 7.25 7.45 7.65 7.85 8.05 8.25 7% 8.53% 8.63% 8.72% 8.82% 8.92% 9.02% 9.11% 9.21% 9.31% 9.40% 9.50% 8% 8.55% 8.65% 8.75% 8.84% 8.94% 9.04% 9.14% 9.23% 9.33% 9.43% 9.53% 9% 8.58% 8.67% 8.77% 8.87% 8.97% 9.06% 9.16% 9.26% 9.35% 9.45% 9.55% 10% 8.60% 8.70% 8.80% 8.89% 8.99% 9.09% 9.18% 9.28% 9.38% 9.48% 9.57% 11% 8.63% 8.73% 8.83% 8.92% 9.02% 9.12% 9.21% 9.31% 9.41% 9.51% 9.60% 12% 8.65% 8.75% 8.84% 8.94% 9.04% 9.14% 9.23% 9.33% 9.43% 9.52% 9.62% 13% 8.67% 8.77% 8.87% 8.96% 9.06% 9.16% 9.26% 9.35% 9.45% 9.55% 9.64% 14% 8.70% 8.79% 8.89% 8.99% 9.09% 9.18% 9.28% 9.38% 9.47% 9.57% 9.67% 15% 8.72% 8.82% 8.92% 9.01% 9.11% 9.21% 9.30% 9.40% 9.50% 9.60% 9.69% 16% 8.75% 8.84% 8.94% 9.04% 9.13% 9.23% 9.33% 9.43% 9.52% 9.62% 9.72% Marginal CoF Negative carry on CRR Operating costs Tenor Premium Marginal CoF based Lending Rate (MCLR) Changes in deposit rates result in immediate impact on marginal of borrowings, which has a 92% in calculation of Marginal cost of funds. The other 8% weightage is towards the cost of equity, which was computed as the hurdle rate under the earlier base rate guidelines. Indian banks currently run a negative carry on CRR/SLR of ~20-60bps, adding to the overall base rate. Under the new methodology there is no negative carry on SLR since the marginal cost of funds ranges between 5.6% to 7.0%. The marginal CoF results in ~25bps of negative carry for most banks. Operating costs are costs associated with providing the loans and includes the cost of raising the funds, effectively meaning entire operating expenses of the bank, and could range between 1.1% to 2.9%. Any service charges recovered would not be part of this component. RBI has introduced a tenor premium to the mix, to adjust for the costs arising out of asset liability mismatches, and this would not be specific to borrower or asset class. Tenor premium could be ~0.5% for 1-year tenor, and much higher for longer residual tenors. Page 5

MCLR Computation ICICIBC, HDFCB, SBIN relatively insulated Marginal Cost of Borrowings [A] Cost of Equity (CAPM) [B] Marginal CoF [C] = 92% * [A] + 8% * [B] Negative Carry on CRR [D] = 4% * [C] / (1-4%) Operating Costs Tenor Premium MCLR (as per Final Guidelines) 1D 1M 3M 6M 1YR 1D 1M 3M 6M 1YR [E] [F] [G] = [C] + [D] + [E] + [F] [H] Difference Existing in Base rate Rates( ) [I] = [H] - [G] Impact on current base rates AXSB 5.7% 13.9% 6.4% 0.27% 2.0% 0.3% 0.4% 0.4% 0.5% 0.5% 8.9% 9.0% 9.1% 9.1% 9.1% 9.50% 0.38% BOB 7.0% 13.7% 7.5% 0.31% 1.1% 0.3% 0.4% 0.4% 0.5% 0.5% 9.2% 9.3% 9.4% 9.4% 9.4% 9.65% 0.23% BOI 6.5% 15.5% 7.2% 0.30% 1.3% 0.3% 0.4% 0.4% 0.5% 0.5% 9.1% 9.2% 9.3% 9.3% 9.3% 9.70% 0.37% CBK 6.4% 15.1% 7.1% 0.30% 1.3% 0.3% 0.4% 0.4% 0.5% 0.5% 9.0% 9.1% 9.1% 9.2% 9.2% 9.65% 0.45% CUBK 6.7% 13.5% 7.3% 0.30% 1.9% 0.3% 0.4% 0.4% 0.5% 0.5% 9.8% 9.9% 9.9% 10.0% 10.0% 10.50% 0.50% DCBB 6.4% 11.9% 6.8% 0.28% 2.5% 0.3% 0.4% 0.4% 0.5% 0.5% 9.9% 9.9% 10.0% 10.0% 10.1% 10.70% 0.63% AXSB BOB BOI CBK CUBK DCBB 0.38% 0.23% 0.37% 0.45% 0.50% 0.63% FB 6.0% 13.3% 6.6% 0.28% 2.0% 0.3% 0.4% 0.4% 0.5% 0.5% 9.2% 9.2% 9.3% 9.3% 9.4% 9.63% 0.25% FB 0.25% HDFCB 5.5% 11.9% 6.0% 0.25% 2.4% 0.3% 0.4% 0.4% 0.5% 0.5% 8.9% 9.0% 9.1% 9.1% 9.2% 9.35% 0.18% HDFCB 0.18% ICICIBC 6.0% 13.8% 6.6% 0.27% 1.8% 0.3% 0.4% 0.4% 0.5% 0.5% 8.9% 9.0% 9.1% 9.1% 9.1% 9.35% 0.21% IIB 6.3% 12.8% 6.8% 0.28% 2.5% 0.3% 0.4% 0.4% 0.5% 0.5% 9.9% 10.0% 10.1% 10.1% 10.1% 10.60% 0.48% JKBK 5.9% 11.5% 6.3% 0.26% 1.9% 0.3% 0.4% 0.4% 0.5% 0.5% 8.7% 8.8% 8.9% 8.9% 9.0% 9.50% 0.55% KMB 5.6% 12.5% 6.2% 0.26% 2.8% 0.3% 0.4% 0.4% 0.5% 0.5% 9.6% 9.6% 9.7% 9.7% 9.8% 9.75% -0.03% KVB 6.7% 12.1% 7.1% 0.30% 2.1% 0.3% 0.4% 0.4% 0.5% 0.5% 9.8% 9.9% 9.9% 10.0% 10.0% 10.40% 0.41% PNB 5.8% 14.2% 6.5% 0.27% 1.7% 0.3% 0.4% 0.4% 0.5% 0.5% 8.8% 8.9% 9.0% 9.0% 9.0% 9.60% 0.59% SBIN 5.8% 14.2% 6.5% 0.27% 1.9% 0.3% 0.4% 0.4% 0.5% 0.5% 8.9% 9.0% 9.1% 9.1% 9.1% 9.30% 0.18% SIB 6.3% 12.1% 6.8% 0.28% 1.7% 0.3% 0.4% 0.4% 0.5% 0.5% 9.0% 9.1% 9.2% 9.2% 9.2% 10.00% 0.76% YES 6.8% 14.8% 7.5% 0.31% 1.7% 0.3% 0.4% 0.4% 0.5% 0.5% 9.7% 9.8% 9.9% 9.9% 10.0% 10.50% 0.54% ICICIBC IIB JKBK KMB KVB PNB SBIN SIB YES -0.03% 0.21% 0.48% 0.55% 0.41% 0.59% 0.18% 0.76% 0.54% Source: Spark Capital Research, Banks deposit card rates, Bloomberg Delta in MCLR need not translate the actual lending rate post loan renewal Eg: Current borrower of say IIB: Base rate + tenor premium + risk premium (10.6% + 0.3% + 1.5%= 12.4%). Borrower under MCLR: MCLR + risk premium = 10.1% + 2.3% = 12.4% Page 6

Valuation Matrix Banks Bank Net Interest Income, Rs. bn Operating Profits, Rs. bn PAT, Rs. bn Gross NPA FY15-17E CAGR NIM FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E NII PAT ABV FY15 FY16E FY17E AXSB 142.2 166.5 191.9 133.9 157.6 180.7 73.6 84.5 95.9 1.5% 1.5% 1.5% 16% 14% 16% 3.6% 3.7% 3.7% BOB 131.9 136.8 159.5 99.2 98.8 117.8 34.0 35.1 52.1 3.8% 5.6% 5.3% 10% 24% 1% 2.0% 2.0% 2.1% BOI 113.4 124.5 141.0 74.9 71.6 85.7 17.1-10.7 11.0 5.5% 7.8% 8.2% 11% -20% -21% 2.1% 2.1% 2.2% CBK 96.6 106.8 120.3 69.5 81.4 91.9 27.0 29.1 38.9 4.0% 4.2% 4.3% 12% 20% 5% 2.0% 2.0% 2.0% CUBK 8.1 9.5 10.8 6.9 8.4 9.8 3.9 4.5 5.8 1.9% 2.1% 2.1% 16% 21% 15% 3.3% 3.5% 3.4% DCBB 5.1 6.0 7.1 2.8 3.3 3.2 1.9 1.7 1.7 1.8% 1.9% 1.8% 18% -5% 9% 3.8% 3.6% 3.5% FB 23.8 25.1 28.6 16.3 14.7 18.2 10.1 7.4 11.1 2.1% 2.8% 2.7% 10% 5% 5% 3.3% 3.1% 3.2% HDFCB 224.0 274.9 338.3 174.0 211.5 262.7 102.2 121.6 158.9 0.9% 0.9% 0.9% 23% 25% 17% 4.6% 4.6% 4.6% ICICIBC 190.4 210.3 236.3 197.2 214.5 241.1 111.8 125.0 138.2 3.9% 3.8% 3.7% 11% 11% 15% 3.4% 3.5% 3.5% IIB 34.2 44.9 58.8 31.0 41.1 53.8 17.9 23.9 31.6 0.8% 0.8% 0.8% 31% 33% 33% 3.8% 4.0% 4.1% JKBK 26.5 27.9 30.5 18.4 17.9 19.3 5.1 7.8 9.6 6.2% 6.7% 6.5% 7% 38% 13% 3.7% 3.9% 4.0% KMB 42.2 68.6 80.7 29.9 41.3 55.8 18.6 21.4 32.0 1.9% 2.7% 2.4% 38% 31% -11% 4.7% 4.1% 4.2% KVB 14.7 17.4 19.6 9.4 12.4 14.1 4.6 5.9 7.1 1.9% 2.0% 1.9% 16% 25% 10% 3.0% 3.4% 3.3% PNB 165.6 172.2 184.5 119.6 123.4 130.8 30.6 33.9 42.7 6.8% 6.6% 6.4% 6% 18% 10% 3.1% 2.9% 2.9% SBIN 550.2 583.0 655.3 389.1 419.8 486.5 131.0 166.4 213.1 4.3% 4.2% 4.1% 9% 28% 12% 3.1% 3.0% 3.0% SIB 13.7 15.2 17.3 8.8 8.8 10.1 3.1 3.9 4.9 1.7% 2.3% 2.2% 12% 27% 8% 2.6% 2.7% 2.8% YES 34.9 46.3 58.5 32.5 42.3 53.8 20.1 25.4 33.0 0.4% 0.6% 0.6% 30% 28% 19% 3.1% 3.4% 3.4% 7

Valuation Matrix Banks (Cont d) Bank RoE RoA ABV/share Rs. P/ABV (x) CMP Shares M.Cap Target FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY16E FY17E (Rs.) (mn) Rs. bn P/ABV(x) Price (Rs.) Rating AXSB 17.8% 17.5% 17.1% 1.7% 1.7% 1.6% 183 212 244 2.0 1.8 433 2371 1025 1.8 442 SELL BOB 9.2% 8.5% 11.4% 0.5% 0.5% 0.6% 139 128 142 1.2 1.1 159 2218 353 0.9 128 SELL BOI 6.3% -3.8% 3.8% 0.3% -0.2% 0.2% 216 144 135 0.8 0.9 118 666 78 0.7 94 SELL CBK 10.7% 10.1% 12.0% 0.5% 0.5% 0.6% 373 379 410 0.6 0.6 243 475 115 0.6 246 SELL CUBK 16.7% 15.8% 17.5% 1.5% 1.5% 1.7% 41 47 55 1.9 1.7 91 597 54 2.1 116 BUY DCBB 14.5% 10.2% 9.7% 1.3% 0.9% 0.8% 51 55 61 1.4 1.3 77 282 22 1.1 66 SELL FB 13.7% 9.4% 13.2% 1.3% 0.8% 1.1% 43 43 47 1.3 1.2 55 1713 94 1.3 61 BUY HDFCB 19.4% 18.1% 20.1% 1.9% 1.8% 2.0% 244 283 335 3.8 3.2 1073 2506 2689 3.8 1274 BUY ICICIBC 14.5% 14.5% 14.0% 1.8% 1.8% 1.8% 128 147 169 1.3 1.1 250 5798 1450 1.9 364 BUY IIB 19.0% 17.3% 16.7% 1.8% 1.9% 2.0% 190 290 338 3.2 2.8 935 529 495 3.3 1115 BUY JKBK 8.6% 12.2% 13.4% 0.7% 1.0% 1.1% 101 111 127 0.7 0.6 76 485 37 1.0 129 BUY KMB 14.0% 9.4% 12.7% 1.9% 1.2% 1.5% 175 122 138 4.7 4.0 702 1821 1279 3.0 576 SELL KVB 12.1% 13.3% 14.5% 0.9% 1.0% 1.1% 326 353 395 1.3 1.2 455 122 55 1.5 593 BUY PNB 8.5% 8.5% 9.8% 0.5% 0.5% 0.6% 120 130 145 0.9 0.8 122 1855 226 0.8 116 SELL SBIN 10.6% 11.9% 13.4% 0.7% 0.8% 0.9% 135 154 169 1.2 1.0 227 7466 1691 1.5 297 BUY SIB 9.2% 10.8% 12.6% 0.5% 0.6% 0.7% 23 24 27 0.8 0.7 19 1350 26 1.0 27 BUY YES 21.3% 20.0% 21.8% 1.6% 1.7% 1.7% 278 326 392 2.2 1.8 719 418 300 2.5 980 BUY * ICICIBC, KMB & SBIN - P/ABV adjusted for subsidiaries 8

Valuation Matrix NBFCs NBFC Net Interest Income, Rs. bn Operating Profits, Rs. bn PAT, Rs. bn Gross NPA FY15-17E CAGR NIM FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E NII PAT ABV FY15 FY16E FY17E CIFC 17.3 20.1 23.0 9.8 11.5 13.3 4.4 5.1 5.8 3.1% 4.6% 5.8% 15% 15% 10% 7.1% 7.4% 7.4% HDFC 80.0 86.3 95.6 87.9 94.9 103.7 59.9 64.1 69.7 0.7% 0.7% 0.7% 9% 8% 11% 3.3% 3.1% 3.1% LICHF 22.4 28.7 32.0 21.1 26.5 29.5 13.9 16.2 17.6 0.5% 0.6% 0.9% 20% 13% 14% 2.2% 2.4% 2.4% MMFS 30.4 31.0 35.7 20.8 20.0 22.8 8.3 7.1 8.7 5.9% 8.9% 10.0% 8% 2% -2% 8.6% 8.0% 8.1% POWF 98.4 117.2 127.6 92.3 109.4 116.0 59.6 68.4 74.8 1.1% 1.4% 1.7% 14% 12% 14% 4.8% 5.0% 4.8% RECL 86.4 97.5 112.0 82.4 97.7 112.6 52.6 63.8 72.2 0.7% 1.2% 1.6% 14% 17% 17% 5.2% 4.9% 4.8% REPCO 2.4 3.0 3.8 0.2 0.2 0.3 1.2 1.5 1.9 1.3% 1.7% 1.6% 26% 24% 18% 4.4% 4.4% 4.3% SCUF 21.4 24.2 27.6 12.9 14.2 16.1 5.6 5.8 6.2 3.1% 6.0% 7.3% 14% 6% 6% 13.6% 13.4% 13.0% SHTF 42.5 47.7 53.5 31.3 35.4 38.8 12.4 12.9 13.9 3.8% 5.5% 6.6% 12% 6% 7% 7.6% 7.5% 7.4% SUF 10.9 11.4 13.1 7.5 8.2 9.2 4.5 5.0 5.2 1.5% 1.6% 2.5% 10% 7% 11% 6.8% 6.6% 6.6% NBFC RoE RoA ABV/share Rs. P/ABV (x) CMP Shares M.Cap Target FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY16E FY17E (Rs.) (mn) Rs. bn P/ABV(x) CIFC 17.5% 16.3% 14.9% 1.9% 2.0% 2.0% 170 191 205 3.3 3.1 637 144 92 3.4 686 BUY HDFC 20.3% 19.6% 19.2% 2.3% 2.2% 2.1% 190 210 233 4.5 3.9 1225 1575 1929 3.6 1168 SELL LICHF 18.1% 19.1% 17.9% 1.3% 1.3% 1.3% 150 172 194 2.8 2.5 484 505 244 2.1 408 SELL MMFS 15.5% 12.0% 13.6% 2.1% 1.7% 1.9% 86 80 83 3.0 2.9 244 564 137 2.3 192 SELL POWF 20.0% 19.7% 18.5% 2.8% 2.8% 2.7% 230 262 299 0.8 0.7 213 1320 281 1.0 299 BUY RECL 23.1% 23.3% 22.1% 3.1% 3.1% 2.9% 242 283 330 0.8 0.7 220 987 218 1.0 329 BUY REPCO 15.8% 16.8% 18.0% 2.3% 2.1% 2.1% 125 146 173 4.4 3.7 635 62 40 4.6 796 BUY SCUF 15.9% 13.5% 13.1% 3.2% 2.9% 2.7% 606 627 679 2.6 2.4 1619 66 107 3.0 2035 BUY SHTF 14.1% 13.2% 12.9% 1.8% 1.7% 1.6% 390 417 445 2.0 1.8 821 227 186 1.7 757 SELL SUF 16.9% 15.6% 14.6% 2.4% 2.5% 2.3% 262 298 324 4.0 3.6 1364 111 152 4.7 1640 BUY Source: Spark Capital Research Prices as of Dec 18, 2015 Price (Rs.) Rating 9

Disclaimer Absolute Rating Interpretation BUY Stock expected to provide positive returns of >15% over a 1-year horizon REDUCE ADD Stock expected to provide positive returns of >5% <15% over a 1-year horizon SELL Stock expected to provide returns of <5% -10% over a 1-year horizon Stock expected to fall >10% over a 1-year horizon Spark Disclaimer Spark Capital Advisors (India) Private Limited (Spark Capital) and its affiliates are engaged in investment banking, investment advisory and institutional equities and infrastructure advisory services. Spark Capital is registered with SEBI as a Stock Broker and Category 1 Merchant Banker. We hereby declare that our activities were neither suspended nor we have defaulted with any stock exchange authority with whom we are registered in the last five years. We have not been debarred from doing business by any Stock Exchange/SEBI or any other authorities, nor has our certificate of registration been cancelled by SEBI at any point of time. Spark Capital has a subsidiary Spark Investment Advisors (India) Private Limited which is engaged in the services of providing investment advisory services and is registered with SEBI as Investment Advisor. Spark Capital has also an associate company Spark Infra Advisors (India) Private Limited which is engaged in providing infrastructure advisory services. This document does not constitute or form part of any offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. thing in this document should be construed as investment or financial advice, and nothing in this document should be construed as an advice to buy or sell or solicitation to buy or sell the securities of companies referred to in this document. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject Spark Capital and/or its affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to a certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such applicable restrictions. This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. Spark Capital makes no representation or warranty, express or implied, as to the accuracy, completeness or fairness of the information and opinions contained in this document. Spark Capital, its affiliates, and the employees of Spark Capital and its affiliates may, from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. This report has been prepared on the basis of information, which is already available in publicly accessible media or developed through an independent analysis by Spark Capital. While we would endeavour to update the information herein on a reasonable basis, Spark Capital and its affiliates are under no obligation to update the information. Also, there may be regulatory, compliance or other reasons that prevent Spark Capital and its affiliates from doing so. Neither Spark Capital nor its affiliates or their respective directors, employees, agents or representatives shall be responsible or liable in any manner, directly or indirectly, for views or opinions expressed in this report or the contents or any errors or discrepancies herein or for any decisions or actions taken in reliance on the report or the inability to use or access our service in this report or for any loss or damages whether direct or indirect, incidental, special or consequential including without limitation loss of revenue or profits that may arise from or in connection with the use of or reliance on this report. Page 10

Disclaimer (Cont d) Spark Capital and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report. To enhance transparency, Spark Capital has incorporated a disclosure of interest statement in this document. This should however not be treated as endorsement of views expressed in this report: Disclosure of interest statement Analyst financial interest in the company Group/directors ownership of the subject company covered Investment banking relationship with the company covered Spark Capital s ownership/any other financial interest in the company covered Associates of Spark Capital s ownership more than 1% in the company covered Any other material conflict of interest at the time of publishing the research report Receipt of compensation by Spark Capital or its Associate Companies from the subject company covered for in the last twelve months: Managing/co-managing public offering of securities Investment banking/merchant banking/brokerage services Products or services other than those above In connection with research report Whether Research Analyst has served as an officer, director or employee of the subject company covered Whether the Research Analyst or Research Entity has been engaged in market making activity of the Subject Company; Analyst Certification of Independence The views expressed in this research report accurately reflect the analyst s personal views about any and all of the subject securities or issuers; and no part of the research analyst s compensations was, is or will be, directly or indirectly, related to the specific recommendation or views expressed in the report. Additional Disclaimer for US Institutional Investors This research report prepared by Spark Capital Advisors (India) Private Limited is distributed in the United States to US Institutional Investors (as defined in Rule 15a-6 under the Securities Exchange Act of 1934, as amended) only by Auerbach Grayson, LLC, a broker-dealer registered in the US (registered under Section 15 of Securities Exchange Act of 1934, as amended). Auerbach Grayson accepts responsibility on the research reports and US Institutional Investors wishing to effect transaction in the securities discussed in the research material may do so through Auerbach Grayson. All responsibility for the distribution of this report by Auerbach Grayson, LLC in the US shall be borne by Auerbach Grayson, LLC. All resulting transactions by a US person or entity should be effected through a registered broker-dealer in the US. This report is not directed at you if Spark Capital Advisors (India) Private Limited or Auerbach Grayson, LLC is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to you. You should satisfy yourself before reading it that Auerbach Grayson, LLC and Spark Capital Advisors (India) Private Limited are permitted to provide research material concerning investment to you under relevant legislation and regulations; Page 11