AMBIT INSIGHTSreports.ambitcapital.com/reports/AmbitInsights_05Jul2016.pdf · 2016-07-05 · temporary factors like an intense summer. Channel ... We maintain TechM Mindtreeas our

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Please refer to the Disclaimers at the end of this Report.

AMBIT INSIGHTS 5 July 2016

DAILY

Top export plays

Stock Rating FY17 P/E (x)

Bajaj Auto SELL 19.3

Cummins India SELL 29.6

Bharat Forge NR 23.7

PI Industries BUY 26.2

AIA Engineering BUY 25.2

Balkrishna Industries SELL 11.5

Vardhman Textiles NR 9.2

Atul Industries NR 19.3

Aarti Industries NR 14.3

Sundaram Fasteners NR 18.3

Indo Count Industries NR 12.0

Kitex Garments NR 18.5

Himatsingka Seide NR 11.5

Source: Bloomberg, Ambit Capital research

NR – Not Rated

Note: For detailed discussion on these names, please refer our note dated Sept 09, 2015

Thematic

B2C Distributors Survey

Weak demand persists in 1QFY17

(Click here for detailed note)

Updates

Technology

Jun-16 preview - All eyes on Brexit impact commentary

Sharda Cropchem (NOT RATED)

Superior execution and stable euro to drive growth

Derivatives

Alpha This Week

An alternative take on the markets

(Click here for detailed note)

Analyst Notes: Torrent Power: GERC allows partial true-up income for FY15 Bhargav Buddhadev, +91 22 3043 3252

GERC has allowed Torrent FY15 true-up income of Rs1.9bn in FY17 in its final order vs Rs4.7bn in its preliminary order. The balance Rs2.7bn (Rs0.1bn disallowed) would be allowed partly in FY18 (FPPPA of Rs1bn) and FY17/FY18 (carrying cost of Rs1.7bn on submission of relevant records). Though the order splits true-up income over two years, it is positive as it erases concerns of rejection of any part of true-up income. FY17 revenue may be hit by splitting of true-up income over two years and un-operational Dahej and Unosugen given lack of gas. However, FY18 is likely to be a stable year as Torrent may get RLNG for Dahej and Unsogen (booked re-gasification terminal from Apr 2017) and receipt of true-up income of FY15. We had put our SELL stance UNDER REVIEW on 1 July 2016 given lack of downside. Moreover, valuations at 0.9x FY18E P/B, 32% discount to peers, have turned attractive. Source: Ambit Capital research

Please refer to our website for complete coverage universe

http://research.ambitcapital.com

http://research.ambitcapital.com

http://reports.ambitcapital.com/reports/Ambit_B2CDistributorsSurvey_Thematic_Weakdemandpersistsin1QFY17_05Jul2016.pdf

http://reports.ambitcapital.com/reports/Ambit_Economy&Strategy_ExportThematic_09Sept2015.pdf

http://reports.ambitcapital.com/reports/Ambit_AlphaThisWeek_05Jul2016.pdf

http://reports.ambitcapital.com/reports/Ambit_TorrentPower_Headwindstransientvaluationsturningattractive_01Jul2016.pdf


Weak demand persists in 1QFY17 1QFY17 saw no revival in broader consumption demand. The FMCG sector is likely to report median volume growth of ~5% YoY in 1QFY17 vs 5.5%/5.5% in 4QFY16/1QFY16 for our coverage universe. Categories like decorative paints, kitchenware and light electricals are likely to report moderation in YoY revenue growth of ~200bps vs 4QFY16. Exceptions to this trend are categories like ACs and fans, which benefited from temporary factors like an intense summer. Channel partners hope for consumption revival in 2HFY17 led by: a) normal monsoon; b) Seventh Pay Commission impact; and c) Government’s rural initiatives like DBT. Margin benefits from softening input costs will continue to support earnings growth for FMCG/paints/kitchenware companies in 1QFY17. Our top BUYs in expectation of reasonable 1QFY17 results are ITC, Berger and Finolex.

Summary of our findings from the distributors’ survey

Category Volume Growth

Price Growth

Promotional Intensity

Most at Risk

Most Secure

FMCG & staples Flat Colgate Marico, ITC, Britannia

Paints Flat Akzo, Kansai Berger, Asian

Kitchenware Flat Hawkins TTK Prestige

Jewellery Flat Regional/ unorg Titan

Light electricals Flat Crompton, Bajaj Havells, V-Guard

Source: Ambit Capital research; Note: ‘’ indicates acceleration of YoY growth vs 4QFY16; ‘’ indicates unchanged YoY growth rates vs 4QFY16; and ‘ ‘ indicates deceleration in YoY growth vs 4QFY16.

Market share shifts: Key market share changes in FMCG in 1QFY17: (a) Dabur and Patanjali gained share from Colgate and HUL in modern trade in oral care; (b) Marico gained market share from unorganised players in coconut oil; (c) Britannia gained share from Parle in biscuits. Berger and Asian Paints gained share from Akzo Nobel and Kansai. TTK Prestige gained share from Hawkins. Regional players like V-Guard and Finolex Cables gained market share in non-South markets. Havells gained market share in the western region. Bajaj lost market share due to ramp-up in Theory of Constraints (ToC) coverage.

Key recommendations: The 1QFY17 results are likely to act as a positive catalyst for firms like ITC, Berger and Finolex Cables given healthy volume growth driven by market share gains despite the weakness in the macro demand environment.

Summary of our volume and value growth expectations for 1QFY17

Ticker 1Q volume 1Q value 1Q =

Ticker 1Q volume 1Q value 1Q =

growth growth Catalyst? growth growth Catalyst?

GSKCH 4% 10% Positive APNT 13% 11% Neutral

NEST NA 22% Neutral BRGR 12% 10% Positive

CLGT 5% 11% Neutral BATA 10% 13% Positive

HUVR 5% 8% Neutral TTAN 10% 15% Neutral

DABUR 5% 9% Neutral BJE -5% -6% Negative

MRCO 9% 5% Neutral PAG 9% 16% Neutral

GCPL 7% 17% Neutral HAVL 15% 11% Positive

BRIT 9% 11% Neutral VGUARD 20% 17% Positive

ITC 5% 8% Positive

TTKPT* 9% 9% Neutral

Source: Ambit Capital research; Note: Volume growth is YoY and pertains to the domestic business based on our channel checks; Value growth pertains to consolidated growth based on Ambit estimates; *TTKPT’s India organic growth.

THEMATIC July 05, 2016

B2C Distributors SurveyNEGATIVE

Consumer

Research Analysts

Consumer Rakshit Ranjan, CFA +91 22 3043 3201 [email protected]

Ritesh Vaidya, CFA +91 22 3043 3246 [email protected] Light Electricals Bhargav Buddhadev +91 22 30433252 [email protected] Deepesh Agarwal, CFA +91 22 30433275 [email protected] Jewellery Abhishek Ranganathan, CFA +91 22 30433252 [email protected] Air Conditioner Nitin Bhasin +91 22 30433241 [email protected]

AMBIT INSIGHTS

Ambit Capital Pvt Ltd 5 July 2016

Technology Jun-16 preview - All eyes on Brexit impact commentary Technology companies are likely to have a seasonally stronger quarter in terms of revenue growth, but we expect margins to decline QoQ (by 70-200bps) due to wage hikes, visa costs, INR appreciation, and costs related to acquisitions for some companies (HCLT: Volvo; Persistent: IBM). Key things to watch for: (1) commentary on demand environment, especially impact of Brexit; (2) demand outlook for European banking sector (stock prices of leading European banks signal stress in the sector); (3) pricing environment and productivity improvement due to automation; (4) digital strategy of different companies and their progress so far. Given the June quarter’s importance in setting the pace for FY17 revenue growth, we believe any material misses on consensus estimates are likely to drive significant stock price movement. We maintain TechM as our top BUY.

Seasonally stronger revenue growth: We expect a strong quarter for TCS, Infosys and HCLT and weak quarters for Wipro and TechM. Infosys is likely to lead the pack (4.0% QoQ growth in organic, constant currency terms) followed by TCS (3.5% QoQ) and HCLT (3.1% QoQ). It is a seasonally weak quarter for Wipro (0% QoQ – mid-point of its quarterly guidance in constant currency) while TechM is expected to report muted growth (-0.5% QoQ) given seasonal weakness in Comviva. All major currencies appreciated against the US$ in the June-16 quarter (average quarter) resulting in 40-100bps tailwind. However, we note that many currencies depreciated meaningfully in the aftermath of Brexit and we expect this to contribute 50-100bps of cross currency tailwind during the Sep-16 quarter.

Amongst mid-sized companies, it is a seasonally strong quarter for Mindtree (3.5% QoQ growth in organic cc terms). We expect Persistent to report strong revenue growth (4.7% QoQ in reported US$ terms) aided by ~200bps inorganic contribution from the IBM deal.

Wage hikes and visa costs to impact margins: EBIT margins are likely to be under pressure for most companies driven primarily by wage hikes, INR appreciation (0.8%) and visa costs. For TCS and Infosys, we build in 130bps and 200bps EBIT margin declines. HCLT and TechM do not administer wage hikes during this quarter. For TechM, we build 130bps decline driven by Comviva-related weakness. For HCLT, we assume a 100bps decline due to margin dilution from the Volvo deal.

Amongst mid-sized companies, impact of the IBM deal on Persistent’s margins is a key thing to watch out for. For Mindtree, we are building in 40bps QoQ decline.

Brexit: Near-term negative, but potentially positive in the long term

In our note dated 27 Jun 2016, we highlighted that Brexit would lower Indian IT players’ revenues and margins over the next 12 months driven by potential IT budget cuts from BFSI and UK-based manufacturing clients. However, we believe Brexit could also create additional demand when things settle as customers would need to update technology to support business changes that Brexit entails, including shifting new HQs or regional offices to mainland Europe. Like the Global Financial Crisis (GFC), this event can make clients more open to outsourcing as they would no longer be burdened by legacy systems and arrangements.

Preparing for the upcoming results

We have increased our long-term USD/INR estimates to Rs67.5 (vs Rs66.5 earlier), which is the primary driver of the upgrades to our EPS estimates. We have made notable changes to our estimates for HCLT (FY18/19 EPS estimates lowered by 4%, target multiple lowered to 14x from 15x) to reflect Brexit-related impact (highest exposure to European BFSI), attrition in senior management, and unattractive acquisitions like Geomtric. We have cut our TP by 15% to Rs850 but have maintained our by stance on cheap valuation of 13x 1-year forward P/E.

POSITIVE Quick Insight Analysis Meeting Note News Impact

Expected result dates Result dates TCS 14 Jul

Infosys 15 Jul

Mindtree 18 Jul

Wipro 19 Jul*

HCLT early August

Persistent 23 Jul

eClerx *

TechM *it

Source: BSE, Company; * denotes expected reporting date as per Bloomberg.

Ambit vs consensus (Mar-16)

EPS (Rs) Ambit Consensus

TCS 30.8 31.3

Infosys 14.9 15.0

Wipro 8.9 9.4

HCLT 13.6 13.7

TechM 7.1 8.3

Mindtree 9.5 9.1

Persistent 9.5 8.9

eClerx 22.9 21.2


Ambit vs consensus (FY17)

EPS (Rs) Ambit Consensus

TCS 134.3 134.7

Infosys 64.3 66.1

Wipro 38.2 38.4

HCLT 55.1 56.5

TechM 35.2 37.3

Mindtree 41.0 41.2

eClerx 40.9 42.2


Resaerch Analysts

Sagar Rastogi [email protected] Tel: +91 22 3043 3291 Kushank Poddar [email protected] Tel: +91 22 3043 3203

mailto:[email protected]


http://reports.ambitcapital.com/reports/Ambit_Technology_BrexittohurtintheneartermTechMmostinsulated_27Jun2016.pdf

AMBIT INSIGHTS


Recommendations We retain TechM as our top pick in the sector. We retain our BUY stance on Infosys, HCLT and TCS and SELL stance on Wipro, Mindtree, Persistent and eClerx.

TCS (BUY, 18% upside): We expect revenue growth to accelerate from FY17 (FY16A: 7%, FY17E: 10%, FY18E: 13%) without significantly compromising margins or cash flows. TCS’ low cost structure and leadership in key segments will enable it to continue winning business. Despite its large scale, TCS has less than 3% market share in each of its key markets, which leaves significant headroom for growth. It also has a good track record of identifying and investing in new markets and segments (e.g., Nordic region, Japan, automation, etc.), which gives us comfort that it will not be blindsided by changing trends. The stock is trading at 18x 1-year forward earnings despite FY16 RoE of 35%+ and FY17-19E EPS CAGR of 12% (we see ~15% in the long-term).

Infosys (BUY, 27% upside): Focused initiatives from the new management have enabled Infosys to improve sales execution (successfully positions itself as offering innovation at India costs) and delivery (employee engagement, automation). We expect revenue growth to accelerate (FY16A: 9%, FY17E: 12%, FY18E: 15%). Valuation of 18x 1-year forward earnings appears attractive with well over 20% RoE (depressed only because of high cash) and FY17-19E EPS CAGR of 15%.

Wipro (SELL, 2% downside): We have a SELL stance on the stock despite reasonable valuations (14x 1-year forward P/E) because of its poor and deteriorating portfolio mix (high exposure to capital markets, telecom equipment), weak organization structure (vertical heads responsible for revenue growth and service-line heads for profitability) and high senior management churn. Our channel checks also indicate that Wipro’s delivery quality is “inconsistent” though the company is taking a number of steps to improve this. We think things are likely to get worse for Wipro before they get better. Also, recent primary checks with industry stakeholders indicate that there are permanent problems in Wipro’s culture that could prevent a turnaround.

HCL Tech (BUY, 17% upside): The current de-rating (13x 1-year-forward EPS vs 15x just 4 months ago) is due to miscommunication by management – revenue growth in the last quarter was below guidance and management abruptly discontinued margin guidance. This will normalise once investors are assured about limited margin deterioration in the core business (ex-Volvo deal, we assume only 50bps deterioration YoY in margins). Our DCF-based target price implies 14x Jun 2018 ending EPS. Our channel checks assure us of HCLT’s strong competitive advantage in fast-growing service lines like infrastructure management and engineering services. High exposure to these, at ~55% of revenue (vs 20%/11% for TCS/Infosys), would ensure HCLT continues to outperform peers over the next 2-3 years on revenue growth. EBIT margin would also normalise as it has in the past (FY16A: 20%, FY17E: 19%, FY18E: 19.5%).

Tech Mahindra (BUY, 35% upside): TechM is our top pick in the technology sector because our thesis of margin expansion and telecom revenue growth acceleration is playing out whereas consensus remains unconvinced. TechM has ample headroom to improve EBIT margin (FY14A: 19.4%, FY16A: 13.5%, FY18E: 16.5%) from automation, code reuse and restructuring of past acquisitions. Our channel checks with industry participants as well as conversations with the Chief Technology Officer of TechM give us confidence. Telecom segment should also return to growth driven by M&A-related integration spend by clients and pipeline of large deals in digital and network management services. We expect FY16-18 EPS CAGR of 14%. There is room for re-rating of current valuations of 13x 1-year forward P/E – our DCF-based target price implies 15x Jun 2018 ending EPS.

AMBIT INSIGHTS


Exhibit 1: Detailed June 2016 quarterly estimates

Jun-16E Mar-16 QoQ Jun-15 YoY Comment

TCS

Sales (US$ mn) 4,396 4,207 4.5% 4,036 8.9% 3.5% QoQ revenue growth in constant currency terms; 100bps tailwind from cross currency movements due appreciation pf Japanese Yen and Singpore Dollar

Sales (Rs bn) 294 284 3.4% 257 14.6% EBIT (Rs bn) 72.8 74.1 -1.7% 67.5 7.9%

EBIT margin (%) 24.8% 26.1% -130 bps 26.3% -150 bps Margins could be impacted by wage hike, but will be offset by INR appreciation and operating leverage.

PBT (Rs bn) 79.3 83.2 -4.6% 75.2 5.5% PAT (Rs bn) 60.6 63.4 -4.4% 57.1 6.2% We have not factored in any forex gains/ losses.

Infosys

Sales (US$ mn) 2,558 2,446 4.6% 2,256 13.4% 4% QoQ revenue growth in constant currency.

Sales (Rs bn) 171 166 3.4% 144 19.2% We estimate 60bps cross currency tailwind.

EBIT (Rs bn) 40 42 -5% 34 17%

EBIT margin (%) 23.5% 25.5% -200 bps 24.0% -50 bps We build-in 200bps decline in EBIT margin on account of wage hikes and visa fees

PBT (Rs bn) 48 50 -3% 42 15%

PAT (Rs bn) 34 36 -5% 30 13% We have not factored in any forex gains/losses.

Wipro

IT Services

Sales (US$ mn) 1,933 1,882 2.7% 1,794 7.7%

0% QoQ revenue growth in organic constant currency terms. Health plan acquisition to contribute 200bps to revenue. Our estimates are in line with guidance (1-3% in cc terms). We are not building in any contribution from Viteos acquisition yet.

EBIT (Rs bn) 25 26 -2.5% 24 3.1% We estimate 70bps cross currency tailwind.

EBIT margin (%) 19.4% 20.1% -70 bps 21.0% -160 bps We build 70bps decline in EBIT margins due to wage hikes and dilution impact from acquisitions.

Consolidated

Sales (Rs bn) 137 137 -0.1% 124 10.9%

EBIT (Rs bn) 24 25 -2.1% 24 1.4%

EBIT margin (%) 17.8% 18.1% -40 bps 19.4% -170 bps

PBT (Rs bn) 29 29 -1.8% 28 2.6%

PAT (Rs bn) 22 22 -1.9% 22 0.5%

HCLT

Sales (US$ mn) 1,693 1,587 6.7% 1,538 10.1%

3.1% QoQ revenue growth in constant currency. The Volvo deal adds US$80mn to total revenue (5%), of which US$50mn (3.2%) is the inorganic component coming from external IT business.

Sales (Rs bn) 113 107 6.3% 98 15.8% We estimate 40bps of cross currency tailwind

EBIT (Rs bn) 22 22 1.4% 20 14.2%

EBIT margin (%) 19.8% 20.7% -100 bps 20.1% -30 bps We expect margins to drop by 100bps due to dilution from Volvo deal, partly offset by INR appreciation

PBT (Rs bn) 25 24 2.0% 22 12.9%

PAT (Rs bn) 19 19 0.8% 18 8.8% Source: Company, Ambit Capital research.

AMBIT INSIGHTS


Exhibit 2: Detailed June 2016 quarterly estimates

Jun-16E Mar-16 QoQ Jun-15 YoY Comment

TechM

Sales (US$ mn) 1,032 1,023 0.9% 989 4.3%

We expect organic constant currency revenue growth to be muted (-0.5% QoQ) due to seasonal weakness in Comviva (-3% QoQ growth assumption for Telecom) offsetting growth in enterprise (2% QoQ). One month of revenue from Pininfarina will contribute 60bps of overall revenue.

Sales (Rs bn) 69 69 0.3% 63 9.7% We are building in 100bps cross currency tailwind.

EBIT (Rs bn) 8.6 9.4 -9.4% 7.6 12.2%

EBIT margin (%) 12.4% 13.7% -130 bps 12.1% 30 bps Margin decline driven by Comviva weakness, visa fees, INR appreciation; partially offset by operating leverage

PBT (Rs bn) 9.2 10.8 -14.7% 8.9 3.6% PAT (Rs bn) 7.0 8.9 -22.1% 6.8 3.1% We have not factored in any forex gains or losses.

Mindtree

Sales (US$ mn) 204 196 4.4% 155 31.8% We expect 3.5% organic cc growth during the quarter and 90bps tailwind from cross currency movements.

Sales (Rs mn) 13,659 13,242 3.1% 9,816 39.1% EBIT (Rs mn) 1,912 1,911 0.1% 1,407 35.9%

EBIT margin (%) 14.0% 14.4% -40 bps 14.3% -30 bps Margin expected to decline by 40bps due to visa costs and costs related to recent acquisitions.

PBT (Rs mn) 2,059 2,004 2.8% 1,781 15.6%

PAT (Rs mn) 1,596 1,560 2.3% 1,382 15.5% We have not factored in any forex gains or losses.

Persistent

Sales (US$ mn) 105 100 4.7% 79 33.8% We expect 4.7% QoQ revenue growth in US$ terms, of which ~200bps will come from IBM deal (all three months of IBM revenues were not included in Mar-16 results).

Sales (Rs mn) 7,038 6,771 3.9% 5,004 40.6% We expect 10bps tailwind from cross currency movements.

EBIT (Rs mn) 780 818 -4.6% 742 5.1%

EBIT margin (%) 11.1% 12.1% -100 bps 14.8% -370 bps Margin expected to be impacted by IBM deal (lower margin), visa costs.

PBT (Rs mn) 1,046 1,028 1.8% 940 11.3%

PAT (Rs mn) 764 808 -5.5% 672 13.6% We have not factored in any forex gains or losses.

eClerx

Sales (US$ mn) 51 51 0.8% 46 10.4% Organic constant currency revenue growth of 0.5%.

Sales (Rs mn) 3,426 3,432 -0.2% 2,983 14.9% We estimate 30bps cross currency tailwind.

EBIT (Rs mn) 1,145 1,269 -9.8% 891 28.6% EBIT margin (%) 33.4% 37.0% -360 bps 29.9% 360 bps Margin expected to be impacted by wage hikes and INR

appreciation. PBT (Rs mn) 1,253 1,359 -7.8% 1,050 19.4% PAT (Rs mn) 952 1,083 -12.1% 732 30.1%

Source: Company, Ambit Capital research

AMBIT INSIGHTS


Exhibit 3: Revisions ahead of earnings season

Rs bn New Estimates Old Estimates Change

Comments FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E

TCS

Target Price (Rs) 2,950 2,950 0%

Our estimates are largely unchanged.

Out TP remains unchanged at Rs2,950 and implies 19x Jun-18 ending EPS estimate.

USD/ INR 67.4 67.4 67.4 66.5 66.5 66.5 1% 1% 1%

Revenue (US$mn) 18,232 20,538 23,111 18,282 20,696 23,290 0% -1% -1%

EBIT 320 360 404 317 358 402 1% 1% 1%

EBIT margin 26.1% 26.0% 26.0% 26.1% 26.0% 26.0% 00bps 00bps 00bps

PAT 265 297 334 262 296 333 1% 0% 0%

EPS (Rs) 134 151 170 133 150 169 1% 0% 0%

Infosys


Our estimates are largely unchanged. We increase our TP to Rs1,500 to reflect quarterly roll-over (19x Jun-18 ending P/E).

USD/ INR 67.4 67.5 67.5 66.5 66.5 66.5 1% 2% 2%

Revenue (US$mn) 10,692 12,250 14,051 10,812 12,420 14,248 -1% -1% -1%

EBIT 178 207 237 175 206 237 1% 0% 0%


PAT 147 171 196 145 171 196 1% 0% 0%

EPS (Rs) 64 75 86 64 75 86 1% 0% 0%

Wipro

Target Price (Rs) 550 550 0%

Our marginally higher estimates for FY17-FY19 reflect weaker assumption for INR. We keep our TP unchanged at Rs550 implying 13x June-18 ending EPS estimate.

USD/ INR 67.4 67.5 67.5 66.5 66.5 66.5 1% 2% 2%

IT Services

Revenue (US$mn) 7,996 8,758 9,699 8,001 8,784 9,727 0% 0% 0%

EBIT 106 115 119 105 114 117 1% 1% 1%


Consolidated

Revenue 567 620 683 561 613 676 1% 1% 1%

EBIT 103 113 129 102 111 127 1% 1% 1%


PAT 94 103 117 93 102 116 1% 1% 1%

EPS (Rs) 38 42 47 38 41 47 1% 1% 1%

HCL Tech

Target Price (Rs) 875 1,000 -13% We lower our estimates for FY18-19 on account of lower growth assumption for engineering services, software segments. We cut our TP to Rs875 on account of cut in EPS estimates and using a lower target multiple 14x (vs 15x earlier).

USD/ INR 67.4 67.5 67.5 66.5 66.5 66.5 1% 2% 2%

Revenue (US$mn) 6,994 7,877 9,017 7,143 8,146 9,322 -2% -3% -3%

EBIT (Rs bn) 90 101 119 90 106 124 -1% -4% -4%

EBIT margin 19.0% 19.0% 19.5% 19.0% 19.5% 20.0% 00bps -50bps -50bps

PAT (Rs bn) 78 87 102 78 90 106 0% -4% -4%

EPS (Rs) 55 62 72 55 64 75 0% -4% -4%


AMBIT INSIGHTS


Exhibit 4: Revisions ahead of earnings season

In Rs bn New Estimates Old Estimates Change

Comments FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E

Tech Mahindra


Our higher estimates for FY18/FY19 reflect our changed INR/USD assumption. We roll forward our target price and increase it to Rs700, implying 15x Jun-18 ending EPS estimate.

USD/ INR 67.4 67.5 67.5 66.5 66.5 66.5 1% 2% 2%

Revenue (US$mn) 4,257 4,703 5,234 4,177 4,621 5,226 2% 2% 0%

EBIT (Rs bn) 42 52 58 44 51 57 -4% 3% 2%

EBIT margin 14.6% 16.5% 16.5% 15.7% 16.5% 16.5% -110bps 00bps 00bps

PAT (Rs bn) 35 41 46 36 40 46 -3% 3% 1%

EPS (Rs) 39 47 52 40 45 51 -3% 3% 1%

Mindtree


Our estimates are largely unchanged. Out TP remains unchanged at Rs720 and implies 14x Jun-18 ending EPS estimate.

USD/ INR 65.5 66.0 66.0 65.1 66.0 66.0 1% 0% 0%

Revenue (US$mn) 709 843 986 706 831 971 0% 2% 2%

EBIT (Rs mn) 6,888 8,354 9,765 6,821 8,227 9,609 1% 2% 2%


PAT (Rs mn) 6,014 6,917 8,077 5,961 6,819 7,956 1% 1% 2%

EPS (Rs) 36 41 48 35 41 47 1% 1% 2%

Persistent (Rs mn)

Target Price (Rs) 700 680 3% Our estimates are largely unchanged. We roll forward our target price to Rs700 (Rs680 earlier) implying 14x Jun-18 ending EPS.

USD/ INR 67.4 67.5 67.5 66.5 66.5 66.5 1% 2% 2%

Revenue (US$mn) 448 505 551 451 506 552 -1% 0% 0%

EBIT (Rs mn) 3,620 4,679 5,470 3,590 4,605 5,405 1% 2% 1%


PAT (Rs mn) 40 40 38 40 40 38 0% 0% 0%

EPS (Rs) 4,484 5,376 6,272 4,534 5,302 6,207 -1% 1% 1%

eClerx (Rs mn)


Our estimates are largely unchanged. Out TP remains unchanged at Rs1,450 and implies 13x Jun-18 ending EPS.

USD/ INR 67.4 67.5 67.5 66.5 66.5 66.5 1% 2% 2%

Revenue (US$mn) 212 242 278 212 242 278 0% 0% 0%

EBIT (Rs mn) 5,053 5,674 6,357 5,068 5,623 6,263 0% 1% 2%

EBIT margin 34.9% 34.4% 33.9% 35.2% 34.5% 33.9% -40bps -20bps 00bps

PAT (Rs mn) 5,237 5,886 6,600 5,252 5,835 6,506 0% 1% 1%

EPS (Rs) 96 108 121 96 107 119 0% 1% 1%


AMBIT INSIGHTS


Sharda Cropchem Superior execution and stable euro to drive growth Meeting with management reaffirmed conviction on Sharda’s competitive advantages. Sharda should continue to maintain healthy EPS growth and ROCEs given: a) China sourcing provides 200-400bps better gross margins than peers; b) strong base of registrations in Europe and helped by growing entry barriers given stricter regulations; c) tight management of overhead costs by promoters. Given growing proportion of off-patent products globally, Sharda is well-positioned to maintain 15-20% volume growth over next 2-3 years. Currency headwinds should ease as euro seems to be stabilizing at ~1.1/USD after falling from 1.4/USD to 1.05/USD in in CY15, which would benefit demand and margins. Valuations of 15x FY18 consensus EPS seem to adequately reflect superior execution of an inferior business model and 24%/26% ROEs/ROCEs; however, EPS could outperform consensus estimates of 14% CAGR over FY16-18. Click here for our last detailed note on Sharda.

Beating the slowdown blues

The global agrochem market saw significant downtrading in CY15 driven by weaker weather conditions and erosion in purchasing power of farmers due to currency headwinds in various countries. However, Sharda maintained a healthy growth trajectory driven by consistent focus on expansion of registrations and distribution. Given depreciation of the Brazilian real, Sharda also cut exposure to Latin America. While the performance of the company was hit by overall industry weakness until Q3FY16, new registrations drove sharp revenue growth of 192% in 4Q.

Sharda continues to gain market share due to distribution and sales force expansion

Management noted that Sharda continues to gain market share in existing molecules driven by expansion of distribution, sales force and new registrations. Its top 10 molecules have retained market share and there was no churn in the list despite 24% volume growth on an overall basis. Management continues to believe that Sharda will be able to deliver 15-20% growth on a constant currency basis. Over the last 2 years, the company increased the number of distributors from 440 to 660 and sales force strength from less than 100 people to 120 people.

Cut in LatAm exposure improved WC; higher capex due to US registrations

Last year, Sharda cut exposure to Latin America and witnessed a sharp increase in trade payables, which led to better WC levels (from 104 days in FY15 to 79 days in FY16) despite a very weak season. The company incurred higher capex of Rs1.42bn in FY16 due to one-time payments to US-based registration owners. According to US regulations, new registrants can use data generated by earlier registration holders but need to share the cost of data generation with earlier registrants. Net cash improved from Rs1.2bn in FY15-end to Rs1.45bn in FY16. However, management expects WC to normalise to 100 days as Latin America sales return to normal.

No concerns on Chinese supply chain; will continue to be cost effective

Management noted that it sees no risk of disruption in supply chain due to ongoing pollution-related issues in China. Sharda hasn’t seen any shutdowns in its supply chain. China will continue to be a cost-competitive country given abundant availability of suppliers. Management belief that product quality with their suppliers is not an issue given: a) Sharda is present in the generic space where the manufacturing process is fairly standardized and is not witnessing much technology change; and b) Sharda never faced quality issues given long standing relationships with these players. Sharda usually has 3-4 players registered as vendors, which give it some flexibility in dealing with them. Given Sharda’s products are generic and are fairly old molecules, many of their product suppliers have readily available basic data (such as five batch analysis) which reduces the time to introduce a new supplier’s name on registration with the regulator.

NOT RATED Quick Insight Analysis Meeting Note News Impact

Stock Information Bloomberg Code: SHCR IN

CMP (Rs): 393

Mcap (Rs bn/US$ mn): 35/527

3M ADV (Rs mn/US$ mn): 34.1/0.5

Stock Performance (%)

1M 3M 12M YTD

Absolute 5 71 14 63

Rel. to Sensex 3 64 17 59


Bloomberg Consensus Estimates (Rs bn)

FY16 FY17E FY18E

Revenues 1750 1953 2270

EBITDA 2947 3016 3530

EPS (Rs) 19.39 22.03 25.48


Research Analysts

Ritesh Gupta, CFA [email protected] Tel: +91 22 3043 3242

Aakash Adukia [email protected] Tel: +91 22 3043 3273



http://reports.ambitcapital.com/reports/Ambit_ShardaCropchem_VisitNote_16Jan2015.pdf

AMBIT INSIGHTS


Exhibit 1: Sharda Cropchem’s revenue growth trends

Source: Company

Exhibit 2: Sharda Cropchem’s PAT growth trends

Source: Company

Expect stable margins

One of the key competitive advantages of Sharda is its tight control over operating costs, which has allowed it to sustain 18-20% EBITDA margin. The promoter continues to believe that he will be able to run the business on tight costs. Strict hiring policies and optimal usage of human resources differentiate the company from other generics players such as Arysta and Adama.

Focused on Europe and Canada

Management’s core focus remains expanding registrations in Europe (core market) and Canada (new focus market) where regulations pose a significant barrier for new players. The US has turned out to be difficult as its dealer channel is quite consolidated and well-covered by MNCs. Management sees material competitive edge in countries where registrations are difficult to get and the dealer market is fragmented. Management expects ~20% constant-currency growth in these markets (vs ~25% this year). Management also noted that while South Africa is a large market loosening of registration norms makes it an unattractive play.

26%

39%

27%

2%

34%

15%

0%

20%

40%

60%

0

2

4

6

8

10

12

14

FY11 FY12 FY13 FY14 FY15 FY16

Tho

usa

nd

s

Revenue Revenue Growth

0%

10%

20%

30%

40%

50%

60%

70%

0

500

1,000

1,500

2,000


PAT PAT growth

AMBIT INSIGHTS


Where do we go from here?

Sharda is an emerging play on the growing shift towards generic agrochemicals worldwide. The company has leveraged its low cost sourcing base in China to build a fast-growing franchise in large agrochemical markets such as Europe, NAFTA and LatAm. Its strong base of registrations under difficult regulatory regimes such as Europe/US is its key advantage. Thus, it has delivered 22%/38% revenue/PAT CAGR over the last four years along with RoCEs of >20% and pre-tax CFO-to-EBITDA of 82%. Given a low market share base, strong cost controls and growing generics share, Sharda’s management could achieve its stated revenue growth target of >20% at ~20% EBITDA margins.

Despite focusing on just part of the value chain, Sharda is able to generate healthy EBITDA margins of ~18%. Strong controls (especially overheads) have led to superior margins and return ratios vs global generics peers. Effective management of sales team remuneration (higher proportion of variable pay) and local hiring have resulted in lower costs. For stronger operational control, promoters travel extensively to overseas geographies. Sharda generates asset turns upwards of 5x, which is a key driver of RoCEs.

On limited consensus earnings estimates, Sharda trades at 15x FY18 EPS, a 30% discount to other agrochemicals players with similar RoEs/RoCEs. Continued strong financial performance and management of scale-related challenges of this unique model are the key catalysts for any further valuation re-rating. Given the business model, key risks are currency volatility and regulatory changes in its key markets.

Exhibit 3: Sharda Cropchem’s post-tax ROCEs

Source: Company

14%

19% 18% 19% 18%

23%

0%

5%

10%

15%

20%

25%



Alpha This Week

June 28, 2016

Derivatives

Securities featured in this note

Company Near Term

Medium term

Nifty () ()

Ashok Leyland () ()

Idea () ()

Zee Entertainment () ()

() denotes positive view, () denotes negative view, <-> denotes no major view/ consolidation. Research Analyst

Prashant Mittal, CFA +91 22 3043 3218 [email protected]

An alternative take on the markets 17th Sept 2013 Along expected lines, the Nifty continued its upmove last week after bouncing off levels close to 8000 post the ‘Brexit’ verdict. Going forward, while some consolidation by the index cannot be ruled out in the near term, we remain positive on the index and expect it to continue its upmoves over the medium term. On stocks, we continue with our shorts on Zee Entertainment and longs on Ashok Leyland and Idea Cellular. We advise exiting shorts on M&M and Hindustan Zinc.

Index: Along expected lines, the Nifty continued its upmove last week after bouncing off levels close to 8000 post the ‘Brexit’ verdict. Going forward, while some consolidation by the index cannot be ruled out in the near term, we remain positive on the index and expect it to continue its upmoves over the coming weeks.

Stocks: On stocks, we continue with our shorts on Zee Entertainment and longs on Ashok Leyland and Idea Cellular. We advise exiting shorts on M&M and Hindustan Zinc.

Nifty- Uptrend likely to continue!

Source: Metastock

CNX IT Index: The CNX IT Index broke out of its trendline resistance during the upmove that began in Aug’11. However, since Mar’15 it had been consolidating in a triangle pattern with the same trendline acting as a strong support. While the index broke out of the triangle pattern in end-May’16, it corrected to come back to find trendline support near 11000 levels along expected lines. Going forward, we expect the index to continue its upmove with levels close to 11000 continuing to act as a strong support for the index.

Institutional flows: FIIs were marginal BUYers of Indian equities last week and bought equities worth Rs7bn. Overall, since May 2015, FIIs have sold Indian equities worth Rs454bn. DIIs remained marginal BUYers and have bought equities worth Rs704bn since May 2015. Further, DIIs, as a class, are currently buyers of Indian equities worth Rs701bn since the General Elections in May 2014. MFs have bought equities worth Rs1.1tn since the elections, indicating robust retail inflows which have been, in part, offset by outflows driven by insurance selling.

AMBIT INSIGHTS


Institutional Equities Team Saurabh Mukherjea, CFA CEO, Institutional Equities (022) 30433174 [email protected]

Research Analysts

Name Industry Sectors Desk-Phone E-mail

Nitin Bhasin - Head of Research E&C / Infra / Cement / Industrials (022) 30433241 [email protected]

Aadesh Mehta, CFA Banking / Financial Services (022) 30433239 [email protected]

Aakash Adukia Oil & Gas / Chemicals / Agri Inputs (022) 30433273 [email protected]

Abhishek Ranganathan, CFA Retail (022) 30433085 [email protected]

Achint Bhagat, CFA Cement / Home Building (022) 30433178 [email protected]

Anuj Bansal Mid-caps (022) 30433122 [email protected] Ashvin Shetty, CFA Automobile (022) 30433285 [email protected]

Bhargav Buddhadev Power Utilities / Capital Goods (022) 30433252 [email protected]

Deepesh Agarwal, CFA Power Utilities / Capital Goods (022) 30433275 [email protected] Dhiraj Mistry, CFA Consumer (022) 30433264 [email protected]

Gaurav Khandelwal, CFA Automobile (022) 30433132 [email protected] Girisha Saraf Mid-caps / Small-caps (022) 30433211 [email protected]

Karan Khanna, CFA Strategy (022) 30433251 [email protected]

Kushank Poddar Technology (022) 30433203 [email protected] Pankaj Agarwal, CFA Banking / Financial Services (022) 30433206 [email protected]

Paresh Dave, CFA Healthcare (022) 30433212 [email protected]

Parita Ashar, CFA Metals & Mining / Aviation (022) 30433223 [email protected]

Prashant Mittal, CFA Strategy / Derivatives (022) 30433218 [email protected]

Rahil Shah Banking / Financial Services (022) 30433217 [email protected]

Rakshit Ranjan, CFA Consumer (022) 30433201 [email protected]

Ravi Singh Banking / Financial Services (022) 30433181 [email protected]

Ritesh Gupta, CFA Oil & Gas / Chemicals / Agri Inputs (022) 30433242 [email protected]

Ritesh Vaidya, CFA Consumer (022) 30433246 [email protected] Ritika Mankar Mukherjee, CFA Economy / Strategy (022) 30433175 [email protected]

Ritu Modi Automobile (022) 30433292 [email protected]

Sagar Rastogi Technology (022) 30433291 [email protected]

Sumit Shekhar Economy / Strategy (022) 30433229 [email protected]

Utsav Mehta, CFA E&C / Industrials (022) 30433209 [email protected]

Vivekanand Subbaraman, CFA Media (022) 30433261 [email protected]

Sales

Name Regions Desk-Phone E-mail

Sarojini Ramachandran - Head of Sales UK +44 (0) 20 7614 8374 [email protected]

Dharmen Shah India / Asia (022) 30433289 [email protected]

Dipti Mehta India / USA (022) 30433053 [email protected]

Hitakshi Mehra India (022) 30433204 [email protected]

Krishnan V India / Asia (022) 30433295 [email protected]

Nityam Shah, CFA USA / Europe (022) 30433259 [email protected]

Parees Purohit, CFA UK / USA (022) 30433169 [email protected]

Praveena Pattabiraman India / Asia (022) 30433268 [email protected]

Shaleen Silori India (022) 30433256 [email protected]

Singapore

Pramod Gubbi, CFA – Director Singapore +65 8606 6476 [email protected]

Shashank Abhisheik Singapore +65 6536 1935 [email protected]

USA / Canada

Ravilochan Pola - CEO Americas +1(646) 361 3107 [email protected]

Production

Sajid Merchant Production (022) 30433247 [email protected]

Sharoz G Hussain Production (022) 30433183 [email protected]

Jestin George Editor (022) 30433272 [email protected]

Nikhil Pillai Database (022) 30433265 [email protected]















































AMBIT INSIGHTS


Tata Consultancy Svcs Ltd (TCS IN, BUY)


Infosys Ltd (INFO IN, BUY)


Wipro Ltd (WPRO IN, SELL)


HCL Technologies Ltd (HCLT IN, BUY)


Tech Mahindra Ltd (TECHM IN, BUY)


Mindtree Ltd (MTCL IN, SELL)


0

500

1,000

1,500

2,000

2,500

3,000

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

Dec

-15

Mar

-16

Jun-

16

TATA CONSULTANCY SVCS LTD

0200400600800

1,0001,2001,400

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

Dec

-15

Mar

-16

Jun-

16

INFOSYS LTD

0100200300400500600700800

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

Dec

-15

Mar

-16

Jun-

16

WIPRO LTD

0

200

400

600

800

1,000

1,200Ju

n-13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

Dec

-15

Mar

-16

Jun-

16

HCL TECHNOLOGIES LTD

0100200300400500600700800

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

Dec

-15

Mar

-16

Jun-

16

TECH MAHINDRA LTD

0100200300400500600700800900

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

Dec

-15

Mar

-16

Jun-

16

MINDTREE LTD

AMBIT INSIGHTS


Persistent Systems Ltd (PSYS IN, UNDER REVIEW)


eClerx Services Ltd (ECLX IN, SELL)


Take Solutions Ltd (TAKE IN, NOT RATED)


Cognizant Tech Solutions (CTSH US, NOT RATED)


Hindustan Unilever Ltd (HUVR IN, BUY)


Asian Paints Ltd (APNT IN, BUY)


0

200

400

600

800

1,000

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

Dec

-15

Mar

-16

Jun-

16

PERSISTENT SYSTEMS LTD

0200400600800

1,0001,2001,4001,6001,800

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

Dec

-15

Mar

-16

Jun-

16

ECLERX SERVICES LTD

0

50

100

150

200

250

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

Dec

-15

Mar

-16

Jun-

16

TAKE SOLUTIONS LTD

01020304050607080

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

Dec

-15

Mar

-16

COGNIZANT TECH SOLUTIONS-A

0

200

400

600

800

1,000

1,200

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

Dec

-15

Mar

-16

HINDUSTAN UNILEVER LTD

0

200

400

600

800

1,000

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

Dec

-15

Mar

-16

ASIAN PAINTS LTD

AMBIT INSIGHTS


Nestle India Ltd (NEST IN, SELL)


Dabur India Ltd (DABUR IN, SELL)


Godrej Consumer Products Ltd (GCPL IN, SELL)


Colgate Palmolive (India) (CLGT IN, SELL)


Marico Ltd (MRCO IN, BUY)


Britannia Industries Ltd (BRIT IN, SELL)


01,0002,0003,0004,0005,0006,0007,0008,000

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

Dec

-15

Mar

-16

NESTLE INDIA LTD

050

100150200250300350

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

Dec

-15

Mar

-16

DABUR INDIA LTD

0200400600800

1,0001,2001,4001,600

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

Dec

-15

Mar

-16

GODREJ CONSUMER PRODUCTS LTD

0

200

400

600

800

1,000

1,200M

ar-1

3

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

Dec

-15

Mar

-16

COLGATE PALMOLIVE (INDIA)

0

50

100

150

200

250

300

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

Dec

-15

Mar

-16

MARICO LTD

0500

1,0001,5002,0002,5003,0003,5004,000

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

Dec

-15

Mar

-16

BRITANNIA INDUSTRIES LTD

AMBIT INSIGHTS


Berger Paints India Ltd (BRGR IN, BUY)


Page Industries Ltd (PAG IN, BUY)


TTK Prestige Ltd (TTKPT IN, BUY)


ITC Ltd (ITC IN, BUY)


Titan Co Ltd (TTAN IN, BUY)


Trent Ltd (TRENT IN, BUY)


0

50

100

150

200

250

300

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

Dec

-15

Mar

-16

BERGER PAINTS INDIA LTD

02,0004,0006,0008,000

10,00012,00014,00016,00018,000

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

Dec

-15

Mar

-16

PAGE INDUSTRIES LTD

0

1,000

2,000

3,000

4,000

5,000

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

Dec

-15

Mar

-16

TTK PRESTIGE LTD

200

250

300

350

400

450M

ar-1

3

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

Dec

-15

Mar

-16

ITC LTD

0

100

200

300

400

500

Jan-

13

Apr

-13

Jul-

13

Oct

-13

Jan-

14

Apr

-14

Jul-

14

Oct

-14

Jan-

15

Apr

-15

Jul-

15

Oct

-15

Jan-

16

TITAN CO LTD

0

500

1,000

1,500

2,000

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

Dec

-15

Mar

-16

TRENT LTD

AMBIT INSIGHTS


Jubilant Foodworks Ltd (JUBI IN, SELL)


0

500

1,000

1,500

2,000

2,500

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

Dec

-15

Mar

-16

JUBILANT FOODWORKS LTD

AMBIT INSIGHTS


Explanation of Investment Rating

Investment Rating Expected return (over 12-month)

BUY >10%

SELL <10%

NO STANCE We have forward looking estimates for the stock but we refrain from assigning valuation and recommendation

UNDER REVIEW We will revisit our recommendation, valuation and estimates on the stock following recent events

NOT RATED We do not have any forward looking estimates, valuation or recommendation for the stock POSITIVE We have a positive view on the sector and most of stocks under our coverage in the sector are BUYs

NEGATIVE We have a negative view on the sector and most of stocks under our coverage in the sector are SELLs Disclaimer This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Ambit Capital. AMBIT Capital Research is disseminated and available primarily electronically, and, in some cases, in printed form. Additional information on recommended securities is available on request. Disclaimer 1. AMBIT Capital Private Limited (“AMBIT Capital”) and its affiliates are a full service, integrated investment banking, investment advisory and brokerage group. AMBIT Capital is a Stock Broker, Portfolio

Manager and Depository Participant registered with Securities and Exchange Board of India Limited (SEBI) and is regulated by SEBI 2. AMBIT Capital makes best endeavours to ensure that the research analyst(s) use current, reliable, comprehensive information and obtain such information from sources which the analyst(s) believes to

be reliable. However, such information has not been independently verified by AMBIT Capital and/or the analyst(s) and no representation or warranty, express or implied, is made as to the accuracy or completeness of any information obtained from third parties. The information, opinions, views expressed in this Research Report are those of the research analyst as at the date of this Research Report which are subject to change and do not represent to be an authority on the subject. AMBIT Capital may or may not subscribe to any and/ or all the views expressed herein.

3. This Research Report should be read and relied upon at the sole discretion and risk of the recipient. If you are dissatisfied with the contents of this complimentary Research Report or with the terms of this Disclaimer, your sole and exclusive remedy is to stop using this Research Report and AMBIT Capital or its affiliates shall not be responsible and/ or liable for any direct/consequential loss howsoever directly or indirectly, from any use of this Research Report.

4. If this Research Report is received by any client of AMBIT Capital or its affiliate, the relationship of AMBIT Capital/its affiliate with such client will continue to be governed by the terms and conditions in place between AMBIT Capital/ such affiliate and the client.

5. This Research Report is issued for information only and the 'Buy', 'Sell', or ‘Other Recommendation’ made in this Research Report such should not be construed as an investment advice to any recipient to acquire, subscribe, purchase, sell, dispose of, retain any securities and should not be intended or treated as a substitute for necessary review or validation or any professional advice. Recipients should consider this Research Report as only a single factor in making any investment decisions. This Research Report is not an offer to sell or the solicitation of an offer to purchase or subscribe for any investment or as an official endorsement of any investment.

6. This Research Report 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. Neither this Research Report nor any copy of it may be taken or transmitted or distributed, directly or indirectly within India or into any other country including United States (to US Persons), Canada or Japan or to any resident thereof. The distribution of this Research Report in other jurisdictions may be strictly restricted and/ or prohibited by law or contract, and persons into whose possession this Research Report comes should inform themselves about such restriction and/ or prohibition, and observe any such restrictions and/ or prohibition.

7. Ambit Capital Private Limited is registered as a Research Entity under the SEBI (Research Analysts) Regulations, 2014. SEBI Reg.No.- INH000000313.

Conflict of Interests 8. In the normal course of AMBIT Capital’s business circumstances may arise that could result in the interests of AMBIT Capital conflicting with the interests of clients or one client’s interests conflicting

with the interest of another client. AMBIT Capital makes best efforts to ensure that conflicts are identified and managed and that clients’ interests are protected. AMBIT Capital has policies and procedures in place to control the flow and use of non-public, price sensitive information and employees’ personal account trading. Where appropriate and reasonably achievable, AMBIT Capital segregates the activities of staff working in areas where conflicts of interest may arise. However, clients/potential clients of AMBIT Capital should be aware of these possible conflicts of interests and should make informed decisions in relation to AMBIT Capital’s services.

9. AMBIT Capital and/or its affiliates may from time to time have or solicit investment banking, investment advisory and other business relationships with companies covered in this Research Report and may receive compensation for the same.

Additional Disclaimer for U.S. Persons 10. The research report is solely a product of AMBIT Capital 11. AMBIT Capital is the employer of the research analyst(s) who has prepared the research report 12. Any subsequent transactions in securities discussed in the research reports should be effected through Enclave Capital LLC. (“Enclave”). 13. Enclave does not accept or receive any compensation of any kind for the dissemination of the AMBIT Capital research reports. 14. The research analyst(s) preparing the email / Research Report/ attachment is resident outside the United States and is/are not associated persons of any U.S. regulated broker-dealer and that

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.

15. This report is prepared, approved, published and distributed by the Ambit Capital located outside of the United States (a non-US Group Company”). This report is distributed in the U.S.by Enclave Capital LLC, a U.S. registered broker dealer, on behalf of Ambit Capital only to major U.S. institutional investors (as defined in Rule 15a-6 under the U.S. Securities Exchange Act of 1934 (the “Exchange Act”)) pursuant to the exemption in Rule 15a-6 and any transaction effected by a U.S. customer in the securities described in this report must be effected through Enclave Capital LLC (19 West 44th Street, suite 1700, New York, NY 10036). In order to receive any additional information about or to effect a transaction in any security or financial instrument mentioned herein, please contact a registered representative of Enclave Capital LLC., by phone at 646 361 3107.

16. As of the publication of this report Enclave Capital LLC, does not make a market in the subject securities. 17. This document does not constitute an offer of, or an invitation by or on behalf of Ambit Capital or its affiliates or any other company to any person, to buy or sell any security. The information

contained herein has been obtained from published information and other sources, which Ambit Capital or its Affiliates consider to be reliable. None of Ambit Capital accepts any liability or responsibility whatsoever for the accuracy or completeness of any such information. All estimates, expressions of opinion and other subjective judgments contained herein are made as of the date of this document. Emerging securities markets may be subject to risks significantly higher than more established markets. In particular, the political and economic environment, company practices and market prices and volumes may be subject to significant variations. The ability to assess such risks may also be limited due to significantly lower information quantity and quality. By accepting this document, you agree to be bound by all the foregoing provisions.

Additional Disclaimer for Canadian Persons 18. AMBIT Capital is not registered in the Province of Ontario and /or Province of Québec to trade in securities and/or to provide advice with respect to securities. 19. AMBIT Capital's head office or principal place of business is located in India. 20. All or substantially all of AMBIT Capital's assets may be situated outside of Canada. 21. It may be difficult for enforcing legal rights against AMBIT Capital because of the above. 22. Name and address of AMBIT Capital's agent for service of process in the Province of Ontario is: Torys LLP, 79 Wellington St. W., 30th Floor, Box 270, TD South Tower, Toronto, Ontario M5K 1N2

Canada. 23. Name and address of AMBIT Capital's agent for service of process in the Province of Montréal is Torys Law Firm LLP, 1 Place Ville Marie, Suite 1919 Montréal, Québec H3B 2C3 Canada.

Additional Disclaimer for Singapore Persons 24. This Report is prepared and distributed by Ambit Capital Private Limited and distributed as per the approved arrangement under Paragraph 9 of Third Schedule of Securities and Futures Act (CAP 289)

and Paragraph 11 of the First Schedule to the Financial Advisors Act (CAP 110) provided to Ambit Singapore Pte. Limited by Monetary Authority of Singapore. 25. This Report is only available to persons in Singapore who are institutional investors (as defined in section 4A of the Securities and Futures Act (Cap. 289) of Singapore (the “SFA”).” Accordingly, if a

Singapore Person is not or ceases to be such an institutional investor, such Singapore Person must immediately discontinue any use of this Report and inform Ambit Singapore Pte. Limited.

Disclosures 26. The analyst (s) has/have not served as an officer, director or employee of the subject company. 27. There is no material disciplinary action that has been taken by any regulatory authority impacting equity research analysis activities. 28. All market data included in this report are dated as at the previous stock market closing day from the date of this report. 29. Ambit and/or its associates have financial interest/equity shareholding in Nifty, M&M, Ashok Leyland, HCL Tech, TCS, Infosys, Torrent Power & Bajaj Auto.

Analyst Certification Each of the analysts identified in this report certifies, with respect to the companies or securities that the individual analyses, that (1) the views expressed in this report reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly dependent on the specific recommendations or views expressed in this report. © Copyright 2015 AMBIT Capital Private Limited. All rights reserved.

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