Risk reward favourable; Upgrade to Accumulate January 22, 2016 Amnish Aggarwal amnishaggarwal@plindia.com +91 22 66322233 Gaurav Jogani gauravjogani@plindia.com +91 22 66322238 Rating Accumulate Price Rs309 Target Price Rs324 Implied Upside 4.9% Sensex 24,436 Nifty 7,422 (Prices as on January 22, 2016) Trading data Market Cap. (Rs bn) 2,439.7 Shares o/s (m) 7,901.8 3M Avg. Daily value (Rs m) 2281.8 Major shareholders Promoters 0.00% Foreign 20.71% Domestic Inst. 35.10% Public & Other 44.19% Stock Performance (%) 1M 6M 12M Absolute (3.6) (1.8) (11.9) Relative 0.9 12.4 3.8 How we differ from Consensus EPS (Rs) PL Cons. % Diff. 2017 13.1 14.5 9.5 2018 14.8 16.4 9.6 Price Performance (RIC: ITC.BO, BB: ITC IN) (Rs) 450 400 350 300 250 200 150 Jan 15 Mar 15 May 15 Source: Bloomberg Jul 15 Sep 15 Nov 15 Jan 16 We are upgrading ITC from Reduce to Accumulate given better than expected recovery in cigarette volumes despite deterioration in sales mix. Q3FY16 results were in line; however, cigarette volume decline of ~4% was better than our and market expectations. 64mm segment has led the volume recovery for ITC and it now accounts for ~18% of volumes even as RSFT and Kings Segment continued to suffer. Although medium term outlook is a function of excise duty in the coming budget, 20% volume decline in the past three years has made the base favourable for future growth. Non cigarette businesses have mixed outlook, given headwinds in rural demand, tourist flow and competition in Hotels, Zero duty imports from ASEAN countries in paperboard and currency and demand issues in Agri Business. ITC has declined by 16% since our downgrade in Feb2015 and risk reward looks favourable, given that we are valuing cigarette business at 21xDec2017E, a steep discount to even mid cap consumer names. We upgrade the stock from Reduce to Accumulate. Steep increase in Excise and VAT (GST) are the key risks to our stock rating. Cigarettes volumes decline ~4%: Q3FY16 Cigarette sales increased by 5.7% and EBIT increased by 3.4%, even as margins declined 160bps. Volumes declined by 4% only (14% Q2) as 64mm filters grew at the expense of RSFT segment and now account for 18% of volumes. Excise duty in upcoming budget holds the key to sustained recovery in cigarette volumes. We are factoring in 4.5% decline in cigarette volumes in FY17 and 1.7% growth in FY18. We estimate 7.8% cigarette EBIT growth in FY17 and 11.2% in FY18. Non cigarette business EBIT up 4.9%: FMCG sales grew 7.1%; EBIT increased 7.7% to Rs188m despite pipeline correction and Chennai floods impacting profitability. Hotels reported an EBIT of Rs258m on 4.5% sales growth as 200bps higher occupancy levels came at the expense of ARR. Paperboard sales increased 5.1%, EBIT increased 12.7% sales mix and lower inputs enabled 130bps margin expansion. Agri sales declined by 7.3%; EBIT declined by 3.1% even as lower commodity exports improved sales mix and enabled 70bps margin expansion. Key financials (Y/e March) 2015 2016E 2017E 2018E Revenues (Rs m) 365,074 368,704 403,230 450,008 Growth (%) 9.8 1.0 9.4 11.6 EBITDA (Rs m) 134,736 141,726 152,672 172,012 PAT (Rs m) 96,078 97,878 107,348 122,059 EPS (Rs) 12.0 12.0 13.1 14.8 Growth (%) 10.2 0.4 8.9 12.9 Net DPS (Rs) 6.3 6.5 7.0 8.0 Profitability & Valuation 2015 2016E 2017E 2018E EBITDA margin (%) 36.9 38.4 37.9 38.2 RoE (%) 33.7 30.1 29.3 29.4 RoCE (%) 33.8 30.2 29.4 29.4 EV / sales (x) 6.4 6.3 5.7 5.1 EV / EBITDA (x) 17.4 16.5 15.2 13.3 PE (x) 25.8 25.7 23.6 20.9 P / BV (x) 8.1 7.3 6.5 5.8 Net dividend yield (%) 2.0 2.1 2.3 2.6 Source: Company Data; PL Research Q3FY16 Result Update Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision. Please refer to important disclosures and disclaimers at the end of the report
Exhibit 1: Q2FY16 Result Overview (Rs m); Adj. PAT up 0.7% on 4% decline in cigarette volumes, 310bps higher tax rate Y/e March Q3FY16 Q3FY15 YoY gr. (%) Q2FY16 9MFY16 9MFY15 YoY gr. (%) Net Sales 91,767 89,426 2.6 89,042 266,687 272,146 (2.0) Gross profit 58,412 54,650 6.9 56,854 169,453 162,043 4.6 Margins (%) 63.7 61.1 63.9 63.5 59.5 Other Exp 22,360 20,008 11.8 21,253 63,942 59,739 7.0 EBITDA 36,052 34,642 4.1 35,601 105,512 102,304 3.1 Margins (%) 39.3 38.7 40.0 39.6 37.6 Depreciation 2,625 2,376 10.5 2,588 7,796 7,122 9.5 Interest 161 84 92.2 103 369 419 (12.0) Other Income 6,779 5,820 16.5 3,992 13,921 11,728 18.7 PBT 40,045 38,002 5.4 36,902 111,269 106,491 4.5 Tax 13,517 11,652 16.0 12,589 37,774 34,026 11.0 Rate (%) 33.8 30.7 34.1 33.9 32.0 Adj. PAT 26,528 26,350 0.7 24,313 73,495 72,466 1.4 Reported PAT 26,528 26,350 0.7 24313 73495 72466 1.4 Exhibit 2: Q3FY16 Sales mix: Share of FMCG slowly inching up Paper and packaging 12.7% Agri business 14.9% Cigarettes 44.0% Exhibit 3: Q3FY16: Cigarettes remain cash cow for ITC FMCG 0.5% Hotels 0.7% Agri business 6.6% Hotels 3.5% Cigarettes 85.2% Paper and packaging 6.9% FMCG 24.9% Net sales increased by just 2.6% to Rs91.7bn mainly due to higher than expected decline in Agri business and lower sales growth in Hotels. Gross margins have increased by 260bps (330bps in Q2) due to price increase in Cigarettes and mix improvement in Agri and paperboard businesses. EBITDA margin increase was restricted to 60bps YoY due to 160bps increase in Other expenditure and 20bps in Employee cost. EBITDA increased by 4.1% to Rs36.05bn. PBT increased by 5.4% to Rs40bn as Other income increased by 16.5% even as Interest cost increased by 92%. Adj. PAT increased by 0.7% to Rs26.5bn due to 310bps increase in tax rate to 33.8%. Tax rate increased due to 1) higher surcharge 2) change in capital exemption period for MF investments and 3) no tax rebate on CSR expenses. January 22, 2016 2
Exhibit 4: Cigarette volumes decline 4%; FMCG sales up 7.1%; Agri and paperboard show margin improvement 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 Cigarette Volume gr % 2.0 3.0 2.5 4.0 14.0 12.0 17.0 14.5 4.0 Sales (Rs m) 95,531 99,792 109,689 100,512 95,830 97,541 101,988 100,567 99,438 Cigarettes 41,161 40,788 42,011 42,509 41,419 42,107 41,496 43,172 43,799 FMCG 20,778 23,145 19,346 21,960 23,141 25,665 21,710 23,516 24,777 Hotels 3,154 3,205 2,487 2,616 3,303 3,464 2,878 2,900 3,453 Agri business 17,864 20,042 32,961 20,587 15,979 14,279 23,254 18,437 14,810 Paper and packaging 12,574 12,612 12,885 12,841 11,988 12,026 12,650 12,541 12,600 Sales growth (YoY) Cigarettes 12.5 12.6 18.8 14.2 0.6 3.2 (1.2) 1.6 5.7 FMCG 16.6 13.7 10.9 11.9 11.4 10.9 12.2 7.1 7.1 Hotels 1.9 1.6 (0.5) 5.9 4.7 8.1 15.7 10.9 4.5 Agri business 9.5 8.1 50.6 16.1 (10.6) (28.8) (29.4) (10.4) (7.3) Paper and packaging 18.5 19.3 10.8 8.9 (4.7) (4.6) (1.8) (2.3) 5.1 EBIT (Rs m) Cigarettes 26,526 25,519 27,218 28,821 28,863 27,062 27,811 29,689 29,838 FMCG 104 431 (156) (103) 115 485 (80) (111) 188 Hotels 622 599 (121) (96) 287 420 (73) (55) 258 Agri business 2,054 1,455 2,025 2,983 2,388 1,644 2,339 2,939 2,314 Paper and packaging 2,317 1,884 2,749 2,421 2,139 1,906 2,544 2,093 2,410 EBIT growth (YoY) Cigarettes 18.8 20.8 21.4 19.5 8.8 6.0 2.2 3.0 3.4 FMCG 143.2 263.0 17.6 18.8 (10.7) 12.6 (48.9) 7.7 (63.6) Hotels 12.1 47.3 (235.2) (209.9) (53.8) (29.8) (40.0) (42.2) (10.0) Agri business 19.0 14.1 1.6 4.8 16.3 13.0 15.5 (1.4) (3.1) Paper and packaging 1.4 0.1 9.3 9.7 (7.7) 1.1 (7.4) (13.6) 12.7 EBIT Margin (%) Cigarettes 64.4 62.6 64.8 67.8 69.7 64.3 67.0 68.8 68.1 FMCG 0.5 1.9 (0.8) (0.5) 0.5 1.9 (0.4) (0.5) 0.8 Hotels 19.7 18.7 (4.9) (3.7) 8.7 12.1 (2.5) (1.9) 7.5 Agri business 11.5 7.3 6.1 14.5 14.9 11.5 10.1 15.9 15.6 Paper and packaging 18.4 14.9 21.3 18.9 17.8 15.8 20.1 16.7 19.1 January 22, 2016 3
Cigarette volumes decline 4%, 64mm segment leads recovery Q3Y16 Cigarette sales increased by 5.7%; EBIT increased by 3.4% even as margins declined by 160bps. We note that Cigarette margins have declined for the first time after 22 successive quarters of expansion. Volumes declined by ~4% YoY although the decline was far lower than 14% in the previous quarter. Volume recovery has been led by the 64mm segment as the share of this in total volumes has increased from 14% last year to the current level of 18 19%. RSFT has bore the brunt of higher excise and VAT and consequent increase in prices. We note that there has been downtrading by consumers due to sharp increase in prices in the past three years. ITC has increased its market share in the 64mm segment to ~65%. We expect further recovery in volumes in Q4FY16 although upcoming budget and excise duty holds key to sustained recovery in cigarette volumes in FY17. We believe that upto 10% excise increase would be positive for ITC, while any excise increase beyond this would impact volumes and profitability. We are currently factoring in 4.5% decline in FY17 and 1.7% growth in FY18. We estimate 7.8% cigarette EBIT growth in FY17 and 11.2% in FY18. Exhibit 5: Volumes decline in Cigarette appears to have bottom out Exhibit 6: Cigarette margins down 160bps YoY (%) 5 0 5 10 15 20 1.5 2.5 1.5 2 2.5 2.5 3.7 4 12 14 17 14.5 4 75.0 70.0 65.0 60.0 55.0 64.4 EBIT Margins (%) 69.7 68.1 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 January 22, 2016 4
FMCG: Supply chain disruptions impact growth, Ghee marks entry into Dairy space FMCG sales grew by 7.1% to Rs24.7bn, while EBIT increased by 63.6% to Rs188m as EBIT margins expanded 30bps, sales growth was impacted by slowdown in rural demand and supply chain disruptions in the South due to floods in Chennai. Most categories witnessed Gross margin expansion due to improved product mix and benign input costs. Profitability continued to remain impacted due to increase in adspend expenses on instant noodles and gestation cost of new categories i.e Gums, Juices and Dairy. Delishus Gourmet Cookie Chocolate Chip made with Ghana Cocoa and Marie Light Rich taste were launched under the confectionary business. ITC marked its entry into the Dairy business with the Launch of Aashirvaad Svasti Pure Cow Ghee which is manufactured at its Munger facility in Bihar. The product has a premium pricing of Rs530/kg and has been launched in Karnataka. ITC has started recovering lost ground in Sunfeast Yippee noodles and the growth has sustained even after the Maggi launch. Sunfeast Yippee has considerably increased market share post Maggi fiasco (13% earlier). Personal product business sales growth was impacted by the deflationary pricing scenario owing to decline in raw material prices. ITC is in the process of building consumer goods manufacturing and logistics facilities across various parts of the country in order to cater to its increasing consumer franchise, in this respect over 20 projects are underway and in various stages of development from land acquisition/site development to construction of buildings and other infrastructure. Education and Stationery Products Business revenue was impacted as synchronization of trade pipeline was undertaken ahead of the season. Exhibit 7: FMCG sales impacted by Chennai floods, rural slowdown and pipeline correction 30,000 25,000 20,000 15,000 10,000 5,000 0 104 20,778 431 23,145 (156) 19,346 (103) Sales 21,960 115 23,141 EBIT (RHS) 485 25,665 21,710 23,516 (80) (111) 188 24,777 600 500 400 300 200 100 0 (100) (200) 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 January 22, 2016 5
Agri sales decline 7.3%; margins expand on improved mix Agri business sales declined 7.3%, due to adverse currency movements in major competing countries limiting export opportunities for Wheat, Soya and Coffee and subdued demand for Indian leaf Tobacco. Leaf tobacco exports continue to suffer due to decline in global cigarette volumes. We believe that declining demand for cigarettes can impact long term outlook in this business as against high growth in the past few years. EBIT declined by 3.1% to Rs2.3bn even as margins expanded by 70bps to 15.6% on improved sales mix and lower prices of leaf tobacco in India. Exhibit 8: Agri business: EBIT margins up 70bps on improved sales mix 25.0 EBIT Margins (%) EBIT Growth (%) 20.0 15.0 10.0 11.5 19.0 16.3 14.9 15.6 5.0 0.0 5.0 3.1 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 Paperboard and Paper: Sales up 5.1%, margins up 130bps Paper business reported 5.1% sales growth after four consecutive quarters of decline in sales, EBIT grew by 12.7% as margins expanded by 130bps to 19.7% on benign input costs and improved product mix. Slowdown in FMCG and Cigarette industry along with zero duty imports from ASEAN countries continues to impact realisations and sales growth. ITC is increasing paperboard capacity from 0.6MT to 0.67MT in the coming 1.5 years. It is also adding India s first Bleached Chemical Thermo Mechanical Pulp mill at its Bhadrachalam unit to reduce costs and its dependence on imports. Input cost scenario and strong brands have enabled margin improvement, however ITC has passed on the input cost gains in B2B segments of business. Mix improvement will remain key driver to profitability in the near term. January 22, 2016 6
Exhibit 9: Paperboard: Margins expand 130bps on benign input cost and mix improvement EBIT Margins (%) Sales growth % 25.0 20.0 15.0 10.0 5.0 18.4 18.5 19.3 14.9 21.3 10.8 18.9 17.8 8.9 15.8 20.1 16.7 19.1 5.1 0.0 1.8 2.3 5.0 4.7 4.6 10.0 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 Hotels: Sales up 4.5%, Chennai Floods flat ARR impacts margins Hotels business sales grew 4.5%; EBIT declined 10% to Rs258m. Q3FY16 sales growth was impacted by sluggish global and Indian scenario and Chennai floods. Occupancy levels improved 200bps to more than 70%; however increase in occupancy came at the expense of pricing. F&B remains at 45 50% of revenues. EBIT was impacted by gestation cost of the recently commissioned ITC Grand Bharat, Chennai floods and higher depreciation charges under Companies Act. We expect slow recovery only given high competition and pressure on ARR. Exhibit 10: Hotels: Falling ARR and gestation costs impacts profitability Sales EBIT EBIT Margins (%) (RHS) (Rs m) 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 (500) 19.7 18.7 3QFY14 3,154 622 4QFY14 3,205 599 2,487 1QFY15 (121) 2,616 4.9 3.7 2QFY15 (96) 8.7 3QFY15 3,303 287 12.1 4QFY15 3,464 420 2.5 1.9 2,878 1QFY16 (73) 2,900 2QFY16 (55) 7.5 3QFY16 3,453 258 25.0 20.0 15.0 10.0 5.0 0.0 5.0 10.0 January 22, 2016 7
Exhibit 11: Annual segmental data Y/e March FY13 FY14 FY15 FY16E FY17E FY18E Net Sales (Rs m) Cigarettes 139,696 154,561 168,046 170,563 182,574 201,571 FMCG 69,828 80,992 90,113 99,513 114,147 132,121 Hotels 10,742 11,328 11,870 13,187 14,789 16,037 Agri Business 72,007 77,521 83,805 74,990 82,651 92,762 Paperboards & Paper 42,368 48,605 49,739 49,967 53,088 57,662 EBIT (Rs m) Cigarettes 83,259 100,159 111,963 117,689 126,889 141,099 FMCG (813) 218 341 498 1,141 1,982 Hotels 1,377 1,397 491 1,055 1,812 2,566 Agri Business 7,313 8,348 9,040 8,399 8,926 9,926 Paperboards & Paper 9,640 8,925 9,215 8,994 10,087 11,532 EBIT Margin (%) Cigarettes 59.6 64.8 66.6 69.0 69.5 70.0 FMCG (1.2) 0.3 0.4 0.5 1.0 1.5 Hotels 12.8 12.3 4.1 8.0 12.3 16.0 Agri Business 10.2 10.8 10.8 11.2 10.8 10.7 Paperboards & Paper 22.8 18.4 18.5 18.0 19.0 20.0 EBIT Growth (%) Cigarettes 20.5 20.3 11.8 5.1 7.8 11.2 FMCG (58.4) (126.9) 56.2 46.0 129.4 73.6 Hotels (50.7) 1.5 (64.9) 115.0 71.7 41.6 Agri Business 13.7 14.2 8.3 (7.1) 6.3 11.2 Paperboards & Paper 2.9 (7.4) 3.3 (2.4) 12.1 14.3 Non Cigarette Businesses Net Sales 194,945 218,446 235,526 237,657 264,675 298,583 Growth % 20.7 12.1 7.8 0.9 11.4 12.8 EBIT 17,516 18,888 19,086 18,946 21,966 26,006 EBIT Growth (%) 5.3 7.8 1.1 (0.7) 15.9 18.4 EBIT Margin (%) 9.0 8.6 8.1 8.0 8.3 8.7 January 22, 2016 8
Income Statement (Rs m) Y/e March 2015 2016E 2017E 2018E Net Revenue 365,074 368,704 403,230 450,008 Raw Material Expenses 146,720 145,672 160,333 178,470 Gross Profit 218,355 223,033 242,897 271,537 Employee Cost 17,800 18,991 20,956 22,593 Other Expenses 65,819 62,315 69,270 76,933 EBITDA 134,736 141,726 152,672 172,012 Depr. & Amortization 9,617 10,528 11,474 12,464 Net Interest (14,857) (17,102) (20,228) (24,000) Other Income 15,431 17,607 20,732 24,504 Profit before Tax 139,976 148,300 161,426 183,548 Total Tax 43,898 50,422 54,078 61,488 Profit after Tax 96,078 97,878 107,348 122,059 Ex Od items / Min. Int. Adj. PAT 96,078 97,878 107,348 122,059 Avg. Shares O/S (m) 8,015.5 8,135.5 8,195.5 8,255.5 EPS (Rs.) 12.0 12.0 13.1 14.8 Cash Flow Abstract (Rs m) Y/e March 2015 2016E 2017E 2018E C/F from Operations 117,688 113,338 119,593 134,242 C/F from Investing (69,453) (55,502) 64,297 73,553 C/F from Financing (48,870) (57,566) (183,879) (207,644) Inc. / Dec. in Cash (636) 270 10 150 Opening Cash 2,347 1,712 2,353 2,358 Closing Cash 1,711 1,982 2,363 2,509 FCFF 84,581 93,822 99,194 117,583 FCFE 84,445 93,832 99,194 117,583 Key Financial Metrics Y/e March 2015 2016E 2017E 2018E Growth Revenue (%) 9.8 1.0 9.4 11.6 EBITDA (%) 9.6 5.2 7.7 12.7 PAT (%) 11.1 1.9 9.7 13.7 EPS (%) 10.2 0.4 8.9 12.9 Profitability EBITDA Margin (%) 36.9 38.4 37.9 38.2 PAT Margin (%) 26.3 26.5 26.6 27.1 RoCE (%) 33.8 30.2 29.4 29.4 RoE (%) 33.7 30.1 29.3 29.4 Balance Sheet Net Debt : Equity (0.4) (0.5) (0.6) (0.6) Net Wrkng Cap. (days) 78 77 74 72 Valuation PER (x) 25.8 25.7 23.6 20.9 P / B (x) 8.1 7.3 6.5 5.8 EV / EBITDA (x) 17.4 16.5 15.2 13.3 EV / Sales (x) 6.4 6.3 5.7 5.1 Earnings Quality Eff. Tax Rate 31.4 34.0 33.5 33.5 Other Inc / PBT 11.0 11.9 12.8 13.4 Eff. Depr. Rate (%) 4.4 4.4 4.4 4.4 FCFE / PAT 87.9 95.9 92.4 96.3. Balance Sheet Abstract (Rs m) Y/e March 2015 2016E 2017E 2018E Shareholder's Funds 307,357 342,168 389,447 440,983 Total Debt 530 540 540 540 Other Liabilities 16,316 19,695 23,372 27,568 Total Liabilities 324,203 362,403 413,359 469,092 Net Fixed Assets 162,926 171,257 181,283 191,319 Goodwill Investments 24,416 24,416 24,416 24,416 Net Current Assets 136,860 166,729 207,659 253,356 Cash & Equivalents 135,524 172,809 215,611 266,867 Other Current Assets 119,090 119,132 128,789 141,744 Current Liabilities 117,754 125,212 136,741 155,255 Other Assets Total Assets 324,203 362,403 413,359 469,092 Quarterly Financials (Rs m) Y/e March Q2FY15 Q4FY15 Q1FY16 Q2FY16 Net Revenue 90,237 92,928 85,877 89,042 EBITDA 34,887 32,431 33,859 35,601 % of revenue 38.7 34.9 39.4 40.0 Depr. & Amortization 2,432 2,496 2,582 2,588 Net Interest 184 155 105 103 Other Income 3,562 3,704 3,150 3,992 Profit before Tax 35,833 33,484 34,322 36,902 Total Tax 11,581 9,872 11,668 12,589 Profit after Tax 24,252 23,612 22,654 24,313 Adj. PAT 24,252 23,612 22,654 24,313 Key Operating Metrics Y/e March 2015 2016E 2017E 2018E Cigarette Volume growth % (8.3) (10.5) (4.5) 1.7 Cigarette EBIT growth % 11.8 5.1 7.8 11.2 FMCG EBIT (rsm) 340.8 497.6 1,141.5 1,981.8. January 22, 2016 9
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 Rating Distribution of Research Coverage PL s Recommendation Nomenclature % of Total Coverage 60% 50% 40% 30% 20% 10% 0% 48.6% 40.2% 11.2% 0.0% BUY Accumulate Reduce Sell BUY : Over 15% Outperformance to Sensex over 12 months Accumulate : Outperformance to Sensex over 12 months Reduce : Underperformance to Sensex over 12 months Sell : Over 15% underperformance to Sensex over 12 months Trading Buy : Over 10% absolute upside in 1 month Trading Sell : Over 10% absolute decline in 1 month Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly DISCLAIMER/DISCLOSURES ANALYST CERTIFICATION We/I, Mr. Amnish Aggarwal (MBA, CFA), Mr. Gaurav Jogani (MBA, Bcom), 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. Terms & conditions and other disclosures: 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 Mr. Amnish Aggarwal (MBA, CFA), Mr. Gaurav Jogani (MBA, Bcom), 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. DISCLAIMER/DISCLOSURES (FOR US CLIENTS) ANALYST CERTIFICATION 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 Terms & conditions and other disclosures: 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. January 22, 2016 10